FCRA Class Action Lawsuits: Something to Watch in 2015

FCRA Compliance
Some time ago, Dollar General settled in a lawsuit that had alleged the company violated Fair Credit Reporting Act (FCRA) requirements, to the tune of $4.08 million. The settlement was issued in the U.S. District Court for Eastern Virginia in the case of Marcum v. Dolgencorp Inc., although Dollar General continues to deny wrongdoing.

The Dollar General case is important in itself, but the bigger picture is that it is part of an increasing trend that sees the FCRA as the basis for class actions. In the past, lawsuits based on FCRA class action used to be targeted toward the large credit bureaus, but now savvy lawyers are using the regulations to go after all kinds of corporations.

Employers must understand that the consumer protections in the FCRA cover “consumer reports” of all kinds: credit reports, criminal background checks, driving records, and any other background reporting that a Consumer Reporting Agency (CRA) might furnish. The process of notification and communication with an applicant or employee that the FCRA mandates is intended to promote a fair hiring environment, something that applicants deserve to expect and something that courts will enforce.

The Issues in the Dollar General Case

The assertions in the Dollar General case highlight how the FCRA applies to every employer. The thing to notice here is that the mandated process is both clear and straightforward. In the end, Dollar General went through the steps required, but not with sufficient time or accuracy for the applicant to respond. The company likely saved very little in skirting FCRA guidelines, but with a very costly outcome.

The plaintiffs alleged that the company failed to give proper disclosure that it was going to obtain a background report, and then failed to give adequate notice that the report would be used in taking adverse action (the pre-adverse action notice). Specifically, the plaintiffs argued that they were denied employment based on the background report; that they did not have sufficient or proper notice of the report and their rights; and that the Summary of Rights notice they did receive was out of date.

The settlement agreement will create two classes of beneficiaries, one that will receive no compensation other than a guarantee that Dollar General will adhere to current FCRA requirements, and another that will receive small payments. Members of the non-monetary class are permitted to pursue damages, but not through a class action suit.

Why the FCRA is a Viable Target

The easy answer to why FCRA class action lawsuits are increasing is that lawyers are sensing the availability of a big payday. Indeed, seven-figure settlements are not uncommon, and the trial lawyers in them receive large contingency fees. The FCRA permits plaintiffs to receive either provable or statutory damages (up to $1,000 per person), and authorizes attorneys’ fees. If the plaintiff can prove negligence, the damages can be higher.

But the deeper answer for the increase is that employers fail to structure consumer reporting processes that comply with the FCRA requirements. Applicants must be notified with a “clear and conspicuous” statement that the employer is going to conduct a background check as part of the employment process, and this notice cannot be obscured by combining it with any other information or procedure.

Then, if the result of the background check would lead to adverse action, the applicant or employee has to be notified of the possibility before the action is taken. At that point, he or she has to receive both the background information being used and a Statement of Rights (provided by FCRA) that outlines options. The applicant has to be given a reasonable amount of time to review and rebut the background information.

Avoiding Compliance Risk

Following FCRA guidelines is more than a requirement, however. It’s also the right thing to do to ensure fairness in the hiring process. There are good reasons to give applicants clear and conspicuous notifications. There are good reasons to give applicants an appropriate chance to respond before taking adverse action. These are simple matters of fairness and serve to help both employers and employees succeed.

Class action lawsuits can be costly, but they can also be avoided. Any good CRA or background screening company should know how to implement background searches and reporting in compliance with both the FCRA and other applicable regulations. With the new year approaching, now is a good time to make FCRA compliance a key part of your 2015 resolutions.



About MichaelGaul

Michael is a results-oriented marketing executive with over two decades of experience in employment screening, physical security, and business process management. Michael has deep experience in human capital risk management and a passion for educating business leaders and HR professionals on strategies that tangibly protect their interests. Michael serves on the Board of the Secure Cash and Transport Association (SCTA) and is a member of the Professional Background Screening Association (PBSA), and the American Society of Industrial Security (ASIS).
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