FTC Testifies on Proposed Amendments to Fair Credit Reporting Act

Proposed legislation to amend the Fair Credit Reporting Act ("FCRA") to remove procedural requirements that unduly interfere with workplace investigations must also preserve the basic privacy safeguards for employees that the Congress enacted in 1970 and significantly expanded in 1996, the Federal Trade Commission said today. Presenting testimony on H.R. 3408, before the House Banking and Financial Services Subcommittee on Financial Institutions and Consumer Credit, Debra Valentine, General Counsel of the FTC, said, "this can be done without hindering the ability of employers to utilize outside entities to conduct such investigations."

The FCRA has been in effect for almost 30 years, and since its inception, has governed the collection and use of certain information for employment purposes. In 1996, Congress adopted wide-ranging amendments to the FCRA, which imposed substantial new requirements on users of consumer reports for employment purposes.

Prior to the 1996 amendments, an employer did not need to notify an employee when the employer obtained an investigative consumer report involving alleged workplace misconduct. In the 1996 amendments to the FCRA, Congress removed this exemption at the same time it added other obligations on employers using consumer reports.

H.R. 3408 proposes an exemption from the definition of "consumer report" that effectively removes from the coverage of the Act investigations of alleged illegal conduct by an employee. The bill adds such investigations to the existing statutory list of items that are not encompassed within the meaning of the term "consumer report" -- Section 603(d)(2) of the FCRA ("Exclusions").

According to the testimony, the effect of such a blanket exclusion is to free workplace investigations not only from the FCRA provisions that are widely agreed to be problematic in that context, but also to eliminate a significant number of long-standing privacy and procedural protections that the FCRA affords to employees that are the target of such investigations.

Valentine emphasized that the Commission "believes legislation is warranted to relieve an employer of the FCRA requirements that actually impede workplace investigations by outside parties. However, the Commission strongly believes that the best method of achieving this end is a targeted statutory exemption from the problematic requirements, not a broad-brush elimination of all FCRA protections." The testimony suggests that a way of achieving the desired goal "would be to add a new FCRA provision, Section 626, applicable to investigations of alleged or suspected workplace illegality, which would provide that, in cases in which a consumer report is obtained for the purpose of investigating suspected or alleged illegal misconduct by an employee, compliance with Sections 604(b)(2)(A) and (3)(A) and 606(a), (b), (c) and (d)(1) is not required."

According to the testimony, "if Congress adopted this approach to amending the FCRA, it would, among other things, serve to 1) remove the requirements that, before procuring a consumer report, the employer must disclose to the employee under investigation that a consumer report will be obtained and obtain the written authorization of the employee to procure the report; 2) remove the requirements that, before taking adverse action based in whole or in part on a consumer report, the employer must provide to the consumer a copy of the consumer report and a written description of the consumer's rights under the FCRA; and 3) remove the requirement that a consumer reporting agency that prepares an investigative consumer report must, upon request, disclose to the consumer all information in the consumer's file."

"The approach recommended by the Commission," the testimony states, "leaves in place (among other provisions of the Act) Section 615 of the FCRA, which requires an employer who takes adverse action against an employee based in whole or in part on any information in a consumer report to provide to the consumer (employee) the name and other identifying information about the consumer reporting agency, and notification of the consumer's right to obtain a disclosure of the report and the consumer's right to dispute the accuracy of the information in the report. These actions would take place after the employer's action against the employee."

The Commission recognizes that the 1996 amendments to the Fair Credit Reporting Act "have resulted in unanticipated conflicts between the aims of the Act and the public policy favoring prompt, objective investigations of workplace misconduct." But "because accused employees should still be protected through the FCRA's reasonable procedures and accuracy safeguards...[w]e recommend that the Congress enact a targeted amendment tailored to those specific procedural provisions of the Act that may genuinely impede workplace investigations by third parties."

The Commission's testimony also included a summary of the liability provisions of the FCRA, and addressed a question regarding the level of protection afforded an employee for external investigations in contrast to internal investigations.

The views expressed in the written testimony represent the views of the Federal Trade Commission. The oral presentation and responses to questions do not necessarily reflect the views of the Commission or any individual Commissioner. The Commission vote authorizing the testimony was 5-0.

Copies of the testimony are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll-free: 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC Matter No. P974805)