Entities Providing Information to Consumer Reporting Agencies are Subject to New Regulations

Beginning July 1, 2010, Federal Trade Commission regulations will impose new obligations on any entity that furnishes information to consumer reporting agencies. While these regulations under the Fair and Accurate Credit Transactions Act of 2003 (known as the “FACT Act” or “FACTA”) principally affect banks and credit card companies that provide credit-related information to credit bureaus, both the Act and the regulations are broad enough also to cover employers who provide employee-related information to background screening or reference-checking companies.

Policies To Ensure Accuracy and Integrity of Reported Information

Under the Fair and Accurate Credit Transactions Act, which amended the Fair Credit Reporting Act, entities that furnish information to a credit reporting agency ( CRA) must establish and implement “reasonable written policies and procedures regarding the accuracy and integrity of the information” it provides. Both the FACT Act and the new regulations cover any employers who give reference/employment verification or other information about their employees or applicants to consumer reporting agencies.

The new regulations require that an entity covered by the Act must implement policies by July 1, 2010 to promote:

• Accurate information that identifies the appropriate consumer, reflects the terms of liability or the correct relationship between the consumer and the provider of information, and reflects the consumer's performance or conduct; and
• Integrity of the furnished information, including maintaining records to substantiate the data, providing it in a form to minimize the likelihood of error in a consumer report, and furnishing it in a standardized and clear manner with a date specifying the time period to which it relates.

The regulations further require that these policies be appropriate to the “nature, size, complexity, and scope” of each providing entity’s activities. In drafting these policies, entities should also evaluate their reporting method, record keeping requirements, internal audits or controls, training for staff, and the effectiveness of their oversight.

Direct Dispute

In addition, the new regulations require that entities furnishing information to a CRA conduct a reasonable investigation into consumer disputes about credit accounts or certain other information contained in a consumer report relating to a person's credit, general reputation, personal characteristics, or mode of living. Previously, consumers were encouraged to contact the CRA to dispute information contained in their report, rather than contacting the entity furnishing the disputed information. Similar to CRAs, where furnishers of information receive a dispute, they must complete their re-investigation of the dispute within 30 days.

Furnishers of information, however, do not have to investigate several types of disputes, including those relating to a consumer's identifying information, the identity of past or present employers, information derived from public records, or information provided to a CRA by a different source.

Implications for Employers

Employers should determine whether and how they work with third-party background screening, employment verification or other services considered “consumer reporting agencies,” and what kind of information they are providing in order to ensure that their policies comply with the new regulations.

For more information, contact the Seyfarth attorney with whom you work, or any Labor & Employment attorney on our website.