Can I Use Credit Reports on my Employees?


credit reportAs an employer, you may use consumer reports when you hire new employees and when you evaluate employees for promotion, reassignment, and retention — as long as you comply with the Fair Credit Reporting Act (FCRA).

The FCRA is designed primarily to protect the privacy of consumer report information and to guarantee that the information supplied by consumer reporting agencies is as accurate as possible.

What is a Consumer Report?

A consumer report contains information about a person’s personal and credit characteristics, character, general reputation, and lifestyle. To be covered by the FCRA, a report must be prepared by a consumer reporting agency (CRA) — a business that assembles such reports for other businesses.

Employers often do background checks on applicants and get consumer reports during their employment. Some examples of consumer reports include:

  1. An applicants or employee’s credit payment records;
  2. Driving records and criminal histories; and/or
  3. Investigative consumer reports, which include interviews with an applicants or employee’s friends, neighbors, and associates.

All of these reports are consumer reports if they are obtained from a CRA.

A reference verified by the employer is not covered by the Act. However, a reference verified by an employment or reference checking agency (or other CRA) is covered.

Key Provisions of the FCRA Amendments

First Step: Employer must give written notice and obtain authorization.

Before an employer can get a consumer report for employment purposes, it must notify the individual in writing — in a document consisting solely of this notice — that a report may be used and an employer must get the person’s written authorization before it asks a CRA for the report. An employer can obtain the authorization at the time of employment.

Second Step: Certification to CRA

Once the employer gets an authorization from the applicant or employee to obtain a consumer report, it must certify to the CRA that:

  1. It has followed the procedures in the First Step;
  2. The information it is obtaining will not be used in violation of any federal and state equal opportunity laws or regulations; and
  3. If the employer takes any adverse action based on the consumer report, a copy of the report and a summary of the consumer’s rights will be provided to the applicant or employee.

If Adverse Action is taken:

If an employer relies on a consumer report for an “adverse action,” i.e., denying a job application, reassigning or terminating an employee, or denying a promotion, it must take the following steps:

First Step: Before an employer takes adverse action:

An employer must give the individual a pre-adverse action disclosure that includes a copy of the individual’s consumer report and a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.” Generally, the CRA that furnishes the individual’s report will give an employer a summary of consumer rights.

Second Step: After an employer takes an adverse action:

An employer must give the individual notice — orally, in writing, or electronically — that an adverse action has been taken in an adverse action notice. It must include:

  1. The name, address, and phone number of the CRA that supplied the report;
  2. A statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give specific reasons for it; and
  3. A notice of the individual’s right to dispute the accuracy or completeness of any information the agency furnished, and his or her right to an additional free consumer report from the agency upon request within 60 days.

In Practice…:

You advertise vacancies for cashiers and receive 100 applications. You want just credit reports on each applicant because you plan to eliminate those with poor credit histories. What are your obligations?

You can get credit reports — one type of consumer report — if you notify each applicant in writing that a credit report may be requested and if you receive the applicant’s written consent. Before you reject an applicant based on credit report information, you must make a per-adverse action disclosure that includes a copy of the credit report and the summary of consumer rights under the FCRA. Once you have rejected an applicant, you must provide an adverse action notice if credit report information affected your decision.

You are considering a number of your long-term employees for a major promotion. You want to check their consumer reports to ensure that only responsible individuals are considered for the position. What are your obligations?

You cannot get consumer reports unless the employees have been notified that reports may be obtained and have given their written permission. If the employees gave you written permission in the past, you need only make sure that the employees receive or have received a “separate document” notice that reports may be obtained during the course of their employment — no more notice or permission is required. If your employees have not received notice and given you permission, you must notify the employees and get their written permission before you get their reports.

In each case where information in the report influences your decision to deny promotion, you must provide the employee with a per-adverse action disclosure. The employee also must receive an adverse action notice once you have selected another individual for the job.

A job applicant gives you the okay to get a consumer report. Although the credit history is poor and that is a negative factor, the applicant’s lack of relevant experience carries more weight in your decision not to hire. What is your responsibility?

In any case where information in a consumer report is a factor in your decision — even if the report information is not a major consideration — you must follow the procedures mandated by the FCRA. In this case, you would be required to provide the applicant a pre-adverse action disclosure before you reject his or her application. When you formally reject the applicant, you would be required to provide an adverse action notice.

The applicants for a sensitive financial position have authorized you to obtain credit reports. You reject one applicant, whose credit report shows a debt load that may be too high for the proposed salary, even though the report shows a good repayment history. You turn down another, whose credit report shows only one credit account, because you want someone who has shown more financial responsibility. Are you obliged to provide any notices to these applicants?

Both applicants are entitled to a pre-adverse action disclosure and an adverse action notice. If any information in the credit report influences an adverse decision, the applicant is entitled to the notices — even when the information isn’t negative.


There are legal consequences for employers who fail to get an applicant’s permission before requesting a consumer report or who fail to provide pre-adverse action disclosures and adverse action notices to unsuccessful job applicants. The FCRA allows individuals to sue employers for damages in federal court. A person who successfully sues is entitled to recover court costs and reasonable legal fees. The law also allows individuals to seek punitive damages for deliberate violations. In addition, federal and state agencies may sue employers for noncompliance and obtain civil penalties.

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