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-- November 1992
Credit reports are gaining popularity with employers faced with the
task of recruiting honest, reliable employees. Some employers use
credit reports to screen applicants for sensitive positions, such as
cashiers or couriers. Other employers use credit reports to give them
a general indication of an applicant's financial honesty and personal
integrity. But many employers may not know that a federal law, the
Fair Credit Reporting Act (FCRA), governs their use of credit
This brochure briefly explains the FCRA and then describes how you,
as an employer, can use credit reports. It also discusses your legal
responsibility under the FCRA to notify applicants if information in
their credit reports influenced your decision not to hire them.
The FCRA, which has been in effect since 1971, is designed to protect
the privacy of information in credit reports and to ensure that
information supplied by credit bureaus about consumers is as accurate
as possible. The law specifically permits credit bureaus to release
to employers credit reports for employment purposes. While the FCRA
does not supersede fair employment laws, it allows employers to
review credit records for the purpose of evaluating anyone they may
hire, promote, reassign, or retain, consistent with other laws.
The Disclosure Notice
When a decision to deny employment is based on information in a
credit report, the employer must disclose this fact to the applicant
-- along with the name and address of the credit bureau making the
report. This is important because some credit reports may contain
errors. The disclosure notice allows an applicant to obtain a free
copy of the credit report and check it for accuracy and completeness.
The disclosure is required even if credit-report information was not
the main reason the applicant was turned down. It may have played a
small part in the overall decision, but the applicant still must be
The disclosure requirement also pertains to any current employee who
applies (and is turned down) for a new position or whose employment
is terminated because of information in a credit report.
A written disclosure is not required. However, employers often
provide written notices -- and keep copies of them for two years --
to show compliance with the FCRA.
Some Common Situations
The following examples illustrate situations where the notice must be
given to job applicants.
* A business receives 100 applications for a cashier position. It
obtains credit reports on all of them and dismisses 50 from further
consideration based on information contained in the credit report.
The remaining 50 have good credit histories. All but ten of them are
ultimately rejected for other reasons.
The first 50 applicants are entitled to the notice.
Their rejections were based solely on their credit reports.
* A person with an unfavorable credit history is denied employment.
Although the credit history was considered a negative factor, the
applicant's lack of relevant experience for the position was even
The applicant is entitled to the notice because the credit report
played a part -- however minor -- in the employer's decision.
* An employer is looking for an employee to fill a particularly
sensitive position. It rejects one applicant with a good credit
repayment history because the report shows a debt load that may be
too great for the proposed salary. Another applicant is rejected
because the credit report shows only one trade line, and the employer
prefers to hire someone who has demonstrated financial
Both applicants are entitled to notices. If any information in the
report influences an adverse decision -- even though the information
may not be otherwise thought of as "negative" -- the disclosure must
* An employer obtains credit reports on applicants. It does not send
rejection letters to those not hired. These applications are simply
filed and later discarded.
Employers are not excused from their notification responsibilities
merely because they had not communicated with the applicants. Once an
applicant is no longer under consideration, in part because of
something in a credit report, the notice must be given.
Noncompliance with FCRA
Employers who do not provide the disclosure when it is required may
face several consequences. Under the FCRA, individuals can sue
employers in federal court for actual damages suffered from an FCRA
violation that occurs because of negligence. A person who
successfully sues under the FCRA is entitled to recover court costs
and a reasonable attorney's fee. The law also permits suing for
punitive damages if it is established that the employer willfully
violated the law.
In addition, the FTC (and other Federal agencies) may
sue users of credit reports who do not comply with the FCRA.
Most employers (except banks and a few other employers) are
subject to the FTC's jurisdiction.
Facts for Business from the Federal Trade Commission
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