Late last year, the Federal Trade Commission (FTC) issued a press release stating that a “Texas company has agreed to pay $3 million to settle Federal Trade Commission charges that the company failed to take reasonable steps to ensure the accuracy of tenant screening information that it provided to landlords and property managers, a violation of federal law that caused some potential renters to be falsely associated with criminal records.”
What federal law, you may ask?
If you’ve been reading this blog, no doubt you’ve already guessed the Fair Credit Reporting Act (FCRA), the law that also governs employment-related background checks. If so, you are correct.
It turns out that the company, a consumer reporting agency (CRA), did not have strict procedures in place to ensure that the findings were indeed associated with the applicants. These applicants were then “turned down for housing or other opportunities.”
The reason is simple: Incorrect reporting of derogatory information can cost an applicant a job, housing, financing, etc. As previously noted, basing a hiring or other decision on incorrect or inadmissible information, or not taking steps to ensure the information is accurate, means serious liability with the FTC.
Doesn’t the liability fall to the consumer reporting agency, and not the client? Can’t a company just trust the firm doing the background check to know what it’s doing?
That happened to be correct in this case, but that doesn’t insulate the company from a civil suit.
Any time a company is taking adverse action, it must be sure it is following the procedures outlined in the FCRA.
If not, then the company will unquestionably be exposed to liability: exposure that would not have occurred had the CRA’s reporting been correct and the end user was not misled to take adverse action.
Real-World Liability
There have been plenty of lawsuits naming both the CRA and the end client for not following the FCRA. Right or wrong, other types of claims, such as Equal Employment Opportunity Commission (EEOC) violations, are also possible.
Let’s face it: There is a higher risk of lawsuits when people are rejected from jobs/housing/financing rather than accepted, let alone when done for a wrong reason.
And there are other costs. As discussed in our article on FCRA violations, there is a cost to identifying and processing candidates, as well as a reputational cost when things go wrong.
The bottom line is this: You must be aware of your background screening company’s reporting processes and policies to ensure compliance with the FCRA. As you can see, the costs and liability for not knowing can be staggering.
