What You Need to Know about the FTC’s Latest Settlement of FCRA Charges

January 23rd, 2013

mobile appsA company that compiled and sold criminal record reports has entered into a settlement agreement with the Federal Trade Commission as a result of charges that it operated as a consumer reporting agency without taking consumer protection measures required by the Fair Credit Reporting Act (FCRA).

The FTC’s agreement containing consent order is the first of its kind by the agency against a mobile app provider.  The company in question marketed criminal background reports through a $.99 mobile app. The FTC alleges that the company did so without ensuring that the information they sold was accurate and would be used for legally permissible purposes. The FTC also alleged that the company neglected to notify users of their obligations under FCRA to notify consumers if an adverse action was taken against them on the basis of the information reported. These are all standard compliance measures that CRAs must take under the FCRA.

The company, its CEO, and the screening firm who supplied the criminal records were all named in the settlement and given a series of orders under which they must prove their compliance with FCRA guidelines in the future.

According to the FTC’s complaint, since at least 2010, the company had operated a series of mobile apps that it advertised consumers could use to conduct a “quick criminal background check for convictions” in specific states. The complaint went on to detail that the company represented that the apps could access hundreds of thousands of criminal records, and that users could conduct a search on potential employees. For example, marketing for the company’s Texas Criminal Record Search, included the following representation: “Are you hiring somebody and wanting to quickly find out if they have a record? Then Texas Criminal Record Search is the perfect application for you.”

But we had a disclaimer!

Both the company and its supplier of the records included a disclaimer in their “terms and conditions” stating that their respective products were not to be considered screening products for insurance, employment, loans, and credit applications, among other things. The disclaimer also stated that the companies were not compliant with the FCRA and anyone who used the information provided by the app “assumes sole responsibility for compliance with the Fair Credit Reporting act and all/any other applicable laws.”

If it looks like a CRA…

According to the FTC’s complaint, these disclaimers are not enough to avoid liability under the FCRA because the company advertised and expected that its reports could be used for employment purposes.  In short, the FTC outlined a sequence of arguments that essentially boil down to: if it looks like a CRA, and acts like a CRA… well, you know the ending.  In other words, in assembling or evaluating information on consumers for the purposes of furnishing a consumer report—defined as communications that include information relating to an individual’s character, reputation, or personal characteristics and are used or expected to be used for employment, housing, credit, or other similar purposes—a company is acting as a consumer reporting agency (CRA) and therefore will bear the responsibilities of a CRA, which include strict adherence to FCRA guidelines.

Despite the disclaimers, the fact that the app had been advertised for employment purposes means that they were “expected to be used” as a factor in determining a consumer’s eligibility for employment—a key definition of a consumer report.

What employers need to know:

From this case, there are three simple reminders here for employers who rely on criminal records for employment screening purposes:

Don’t assume.

Employers often assume that their background screening companies are following FCRA compliance obligations and employing sound strategies to ensure that the criminal background checks they provide are as complete, accurate and thorough as possible. But how can you be sure? Employers are wise to ask the right questions knowing that failure to comply on the part of the CRA will likely reflect back on the employer in a negative light.

It is your problem, too.

As the “end users” of consumer reports, employers are also subject to FCRA compliance requirements, including providing notice to individuals that they will be the subject of background screening and obtaining their authorization to perform such screening. If your background screening company/CRA is not following their side of the FCRA obligations, chances are they are not helping you maintain your side of the responsibility. Either way, the burden can easily and ultimately fall in your lap if a candidate or employee is the victim of a failed process.

There are no shortcuts.

Criminal records screening should not be undertaken lightly. As valuable as it has proven to be as an employment tool, it is also a process that brings a wide range of privacy, safety, and compliance issues that, if violated, are not taken lightly. Employers must appreciate what it means to conduct a criminal records check and that a “quick and cheap” database check simply cannot suffice.

We encourage you to engage in a dialogue with us to find out how we can help you create and maintain an efficient and effective background screening process.  Request a consultation.
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