Proposed Amendments to Fair Credit Reporting Act

February 19, 2016

Two new bills affecting credit reporting and the use of credit reports for employment purposes are working their way through Congress. If passed, the bills would amend the Fair Credit Reporting Act (FCRA). The first, The Credit Access and Inclusion Act of 2015, H.R. 4172, would allow for increased reporting of customer payment information by companies in the telecommunications and utility industries, with an eye toward helping low-income consumers establish positive credit. The second, the Equal Employment for All Act of 2015, H.R. 3524, would prohibit most employers from using credit reports as a factor in evaluating consumers for employment.

The Credit Access and Inclusion Act – H.R. 4172

H.R. 4172 was introduced in December 2015 with bipartisan support. The bill would make it clear that utility and telecommunication companies may report positive payment information about their customers to credit reporting agencies. This would allow individuals who have little or no traditional credit history but who regularly pay their utility and telecommunication bills on time to begin building positive credit scores.

The bill states: “[n]otwithstanding any other provision of law, a person … may furnish to a consumer reporting agency information relating to the performance of a consumer in making payments … pursuant to a contract for a utility or telecommunications service.” The bill also prohibits energy utilities from reporting as late those consumers who are making payments pursuant to an agreed-upon payment plan and who are meeting the obligations of the payment plan.

Furnishing all data about a consumer is referred to as “full-file reporting.” Ordinarily, utility and telecommunication companies report only negative information to consumer reporting agencies, such as missed payments, defaults, and accounts in collections. One reason for this is uncertainty over whether such companies are permitted to report positive payment information to consumer reporting agencies. Regulatory bodies have sent mixed messages on what type of reporting is permitted, and several states have privacy laws that expressly prohibit the furnishing of payment information from utility customers.

The proposed legislation would affirmatively allow utility and telecommunication companies to report positive payment information for their customers. The bill also would supersede any contrary state laws, providing clarity to companies about the breadth of their reporting. Most of the major consumer reporting agencies have offered their support for the bill, and a companion bill has been introduced in the Senate.

If the bill is passed and goes into effect, utility and telecommunication companies will want to reevaluate their procedures for reporting consumer payment information to consumer reporting agencies. Although the bill does not require companies to begin “full-file reporting,” it does place new limits on reporting information about consumers making payments pursuant to a payment plan. Companies may also want to ensure that they have a good working relationship with the consumer reporting agencies to which they provide information.

Equal Employment for All Act of 2015 – H.R. 3524

H.R. 3524 would amend the FCRA to prohibit most employers from using consumer credit reports on prospective and current employees for the purpose of making adverse employment decisions. The bill tracks laws that have been passed in roughly a dozen states that impose limitations on the use of credit information as a factor in employment decisions.

Specifically, the bill would prohibit employers from using a consumer report that contains information bearing “on the consumer’s creditworthiness, credit standing, or credit capacity” as a factor in making adverse employment decisions unless the consumer is applying for a position that requires access to classified information or when otherwise required by law. In all other circumstances, credit information would be off-limits to employers. The FCRA defines adverse employment decisions broadly, covering decisions to hire, terminate, and deny advancement, so the limitation would apply to the vast majority of employment decisions.

Currently, the FCRA allows employers to use credit information when evaluating candidates for employment, but imposes detailed disclosure and notice requirements. Credit reports are a subset of the broader family of consumer reports, which can include criminal history, personal information, and any other information that bears on a consumer’s “mode of living.” The bill does not impact consumer reports generally, focusing only on those containing credit information.

If passed, the bill would extend even further than many of the recently enacted state laws, which carve out exceptions for financial institution employers or are limited to public employees. The only limitations in the bill are for employees who will be handling classified information or who are required by law to have their credit checked for their positions. These will apply to only a very narrow segment of the population.

It remains to be seen whether such a sweeping change to the status quo will garner much support. Nevertheless, it is important for employers to be aware of the many requirements imposed on them by the FCRA and state laws with respect to using background checks for employment purposes. Numerous state laws impose limitations on the use of credit reports, as well as unique notice and disclosure provisions that employers must adhere to before obtaining all background checks. Cases brought under these laws are often ripe for class certification, and the FCRA and many state laws impose punitive statutory damages for even technical violations. These factors make it doubly important for employers to be aware of any changes in the legal landscape regarding the use of background checks for employment purposes.