Wall Street Reform Legislation Will Have Impact on Some Employer Background Checks

In the wake of the recent financial meltdown, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The thrust of the Dodd-Frank Act is to end “too big to fail” and implement preventative regulatory oversight of the financial services industry to avoid another financial meltdown. Buried on pages 2006 through 2010 of the 2319 pages of the Dodd-Frank Act, however, are consumer protection provisions which will impact the manner in which some employers conduct background checks on prospective and current employees.

Most employers conduct routine background checks and occasionally request credit reports on prospective hires and current employees. The Dodd-Frank Act will not impact the currently existing obligations of these employers under the Fair Credit Reporting Act (“FCRA”). Several employers, however, consider credit scores of prospective and current employees in assessing the propriety of placement in financially sensitive positions – i.e. positions in which the employee will have access to cash, credit and financial information and other valuable assets or data. These employers typically use credit scores to identify employees who, because of current or historical financial hardships, might be predisposed to misuse their access and misappropriate the employers’ assets and data. For these employers, the Dodd-Frank Act will impose new obligations effective July 21, 2011.

Specifically, in addition to the currently existing obligations under the FCRA, an employer utilizing a credit score must:

1. Provide written notice to the current or prospective employee that a credit score was considered in the employment decision;
2. Disclose the actual credit score;
3. Disclose the range of possible credit scores under the model used;
4. Disclose the date on which the employee’s credit score was created;
5. Disclose the key factors, listed in order of importance, which adversely affected the score of the consumer in the model used;
6. Identify the credit reporting agency providing the credit score;
7. Notify the applicant of the right to contact the agency to contest or correct any errors. The Federal Reserve Board has proposed but not yet approved a new FCRA Notice form to require these disclosures.

Last year, 794 FCRA or consumer credit lawsuits were filed in Florida Federal Courts. For more information, contact Kelly Kolb.