CFPB Circular 2024-06 – FCRA Compliance for Employment-Related Consumer Reports
By Terry Walpole
November 5, 2024
On October 24th the Consumer Financial Protection Bureau (“CFPB”) released Consumer Financial Protection Circular 2024-06 Background Dossiers and Algorithmic Scores for Hiring, Promotion, and Other Employment Decisions (“circular”). The circular addresses the use of third-party consumer reports by employers to make employment decisions about their workers and notes that such reports are more and more extending beyond traditional background checks and may encompass a wide range of information and assessments about workers (e.g., employers who require workers to install apps on their personal phones that monitor their conduct, which may be used to assess their performance).
The circular makes clear that an employer making employment decisions utilizing background dossiers, algorithmic scores, and other third-party consumer reports about workers must adhere to the Fair Credit Reporting Act (“FCRA”). According to CFPD Director, Rohit Chopra, “Workers shouldn’t be subject to unchecked surveillance or have their careers determined by opaque third-party reports without basic protections . . . The kind of scoring and profiling we’ve long seen in credit markets is now creeping into employment and other aspects of our lives. Our action today makes clear that longstanding consumer protections apply to these new domains just as they do to traditional credit reports.”
The CFPB circular “makes clear” and emphasizes the FCRA’s protections with respect to consumer reports, noting that employers that use the reports, both initially when hiring employees, and for subsequent employment purposes, must comply with FCRA obligations, including the following:
- Consent: When companies provide these reports, the law requires employers to obtain worker consent before purchasing them. This ensures that workers will be aware of and can make informed decisions about the use of their personal information in employment contexts.
- Transparency: Employers are required to provide detailed information to workers when taking adverse action, including firing, denials of promotions, and demotions or other reassignments, based on the reports. This allows workers to challenge any inaccuracies that may have influenced the decisions.
- Disputes: When a worker disputes what is in a report, companies are required to correct or delete inaccurate, incomplete, or unverifiable information.
- Limits: Employers can only use these reports for purposes that are allowed under the law. For example, employers generally cannot sell this information on the open market or use it to market financial products to their workers.
In making an employment decision based on a report from a third party regulated by the FCRA, the circular says there are two questions to consider:
- Does the employer’s use of data qualify as a use for “employment purposes” under the FCRA?
- Is the report obtained from a “consumer reporting agency,” meaning that the report-maker assembled or evaluated consumer information to produce the report?
To the first question the circular notes “employment purposes” under the FCRA means “a report used for the purpose of evaluating a consumer for employment, promotion, reassignment, or retention as an employee.” This means it includes information used for a hiring decision and ongoing employment purposes.
To the second question it says that third a party could be a “consumer reporting agency” that assembles or evaluates consumer information if they collect consumer information in order to furnish reports to employers. And further note that an entity will also be considered to have assembled or evaluated consumer information if the consumer data is collected to train an algorithm that produces scores or other assessments about employees for employers.
The CFPB encourages employers to review their current practices regarding the use of third-party consumer reports to ensure compliance with FCRA requirements.
About the Author
Terry Walpole
Terry Walpole is a veteran Paralegal at SW&M with over 25 years of experience in financial institution law. The firm relies on his keen research skills, wide knowledge base, and continuing education to remain up to date with all laws […]
Learn More