Background checks – stepped-up enforcement of FCRA

June 2013 | 10QUESTIONS | FRAUD & CORRUPTION

financierworldwide.com

FW speaks with Jerry Oldham, chief executive officer at 1stWEST Financial Corporation about stepped-up enforcement of FCRA and background checks.

FW: Could you provide an overview of the FCRA and its intended aims?

Oldham: Broadly speaking, the Fair Credit Reporting Act (FCRA) was created to ensure that personal information about consumers is regulated and protected from falling into the hands of those without a legitimate need and permissible purpose for receiving such information. This permissible purpose category is regulated under Section 604 of FCRA.

FW: Given that the FCRA is designed to protect individuals, what are the key challenges it presents to employers?

Oldham: The FCRA holds that obtaining a consumer report for pre-employment purposes is a permissible purpose. So as long as employers obtain reports on individuals for this purpose in accordance with FCRA regulations and guidelines there are no specific challenges that would face companies and employers.

FW: What lessons can be drawn from recent high profile cases, such as Spokeo?

Oldham: Allegedly, the marketing tactic that the online data broker Spokeo has taken is to attract clients who suspect that their spouse is cheating on them. If this is correct, this is not a permissible purpose under the FCRA for obtaining personal information on an individual.

FW: What steps should companies take to ensure they comply with the FCRA? What general policies and procedures might they need to implement?

Oldham: Companies should understand all provisions of the FCRA and follow them to the letter of the law. It is that simple. The regulation of, and the protection of, the providing of personal information is essential.

FW: What written authorisation and notices may be required when conducting background checks on individuals?

Oldham: So long as those seeking a consumer report have a legal need for the information, written authorisations by the consumers and individuals upon whom a Consumer Report is being obtained are essential and necessary.

FW: What are the rules surrounding adverse actions under the FCRA?

Oldham: If an individual is turned down for credit or for employment because of information obtained in a consumer report, then the lender or employer is required to tell them in writing and disclose the source of the information. The subject consumer or individual can then request a copy of the consumer report, after providing proper photo identification.

FW: Could you explain the main differences between an ‘investigative consumer report’ versus a standard consumer report? How are these reports affected by the FCRA?

Oldham: A consumer report becomes an ‘investigative consumer report’ when the company obtaining the report interviews someone about the subject’s background, lifestyle, business relationships, and mode of living. It is this verbal interaction that triggers the change in the category of the report.

FW: What consequences can companies expect to face if they are found to be in breach of the FCRA?

Oldham: Companies, and possibly individuals too, could ultimately face criminal charges if found in breach of FCRA guidelines. Reporting personal information outside the guidelines of FCRA is a serious offense.

FW: Do you expect to see any material changes made to the FCRA in the months ahead?

Oldham: This is hard to predict, but in today’s consumer protective environment it is likely that the regulation of personal information will keep getting tighter and more regulated, including FCRA regulations and their enforcement.

FW: Going forward, what advice would you give to companies on performing background checks?

Oldham: Regarding the FCRA, one must be sure that there is a legitimate need and a permissible purpose for obtaining a consumer report or investigative consumer report. Permissible purpose is covered in Section 604 of the FCRA.

Jerry Oldham is co-founder, chairman and CEO of 1stWEST Financial Corporation. Mr Oldham has an extensive investigations and corporate due diligence background, and a broad senior management resume in commercial banking and corporate and real estate finance. He frequently serves as a consultant or expert witness in litigation and settlement negotiations involving complex corporate finance, real estate, banking, and lending practice issues, having assisted in the settlement of hundreds of lawsuits. He can be contacted on +1 (303) 670 3443 or by email: j.oldham@1stWEST.com.

THE RESPONDENT

Jerry Oldham

1stWEST Financial Corporation