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Employer’s Summary Of Credit, Background, And Investigation Reports Page 1 of 6© James R. McDade (version 04-14-05) 209-667-2300 EMPLOYER’S SUMMARY OF CREDIT, BACKGROUND, AND INVESTIGATION REPORTS A.California Law Summary ............................................................................................. 1B.Federal Law Summary ................................................................................................ 4C.Summary Instructions For Obtaining Reports From Outside Agencies ....................... 6D.Summary Instructions For Obtaining Public Records In-house................................... 6When it comes to obtaining credit, background and investigation reports, the employer must not only follow California law, but also Federal law. California addresses traditional consumer credit reports in the California Consumer Credit Reporting Agencies Act and background investigation checks in the California Investigative Consumer Reporting Agencies Act, as discussed below. The Federal Fair Credit Reporting Act of 1970 also governs consumer credit reports and background investigation checks. The following instructions are intended to help an employer comply with all three laws using one set of forms.A. California Law Summary1.) California Investigative Consumer Reporting Agencies Act – Specifically CC §1786.16 An “investigative consumer report” is basically anything, other than a traditional credit report, that provides information on the “consumer’s” (i.e., employee’s or job applicant’s) character, general reputation, personal characteristics, or mode of living, regardless of how the information is obtained. If this information is obtained from an “investigative consumer reporting agency” (meaning any person or company who, for a fee, gathers or shares such information with others) then the following rules apply.(1) Prior Written Notice to Consumer. The employer must, at any time before the report is obtained, give notice to the prospective or current employee (i.e., “consumer”) that an investigative consumer reporting agency is being used to provide information on the consumer’s character, general reputation, personal characteristics, and mode of living. The notification must include the name and address of the investigative consumer reporting agency, the nature and scope of the investigation, and summary of the provision of CC §1786.22 [Rules for Supplying Files and Information]. Note: Similar provisions are required under Federal law.(2)Prior Authorization from Consumer . The employer must obtain permission from the consumer authorizing the procurement of the consumer credit report. Note: Similar provisions are required under Federal law.(3)Certification to Reporting Agency. When ordering the investigative report, the employer must certify to the investigation agency that the employer has made the applicable disclosures to the consumer and will provide a copy of the report as required below. Note: Similar provisions are required under Federal law. Employer’s Summary Of Credit, Background, And Investigation Reports Page 2 of 6© James R. McDade (version 04-14-05) 209-667-2300(4)Copy of Report to Consumer. The employer must provide the consumer with a copy of the report, information on who issued the report, and how to contact the investigative consumer agency who supplied the report. This must be provided by the earlier of either (a) the meeting or interview between the employer and the job applicant or employee, or (b) within 7 days of the employer receiving a copy of the report. Note: Under Federal law, a copy of the report must be provided only if adverse action is being taken due to information in the report.(5) Notice of Adverse Action. If any adverse action is taken in response to the report, then the employer must give written notice of the adverse action, and provide the name, address and phone number of reporting agency, and information regarding the person’s right to dispute the information. Note: Similar provisions are required under Federal law.(6)Workplace Investigations. Please note, however, that prior notice of obtaining an investigative report does not need to be given if the employer is using an outside firm to investigate “suspicion of wrongdoing” by the employee, or if the purpose is to determine whether to retain in employee when there is a good faith belief that the employee is engaged in any criminal activity likely to result in a loss to the employer. But after the investigative report is generated, the employer must provide the employee with a copy. Note: This exception also applies under Federal law.One should read the law and seek legal assistance if such investigative reports are to be obtained.2.) California Consumer Credit Reporting Agencies Act – Specifically CC §1785.20 & §1785.20.5 A “consumer credit report” is the traditional credit report regarding the consumer’s (i.e., employee’s or job applicant’s) credit worthiness, credit standing, or credit capacity. If this information is obtained from a “consumer credit reporting agency,” meaning any person or company who, for monetary fees gathers or shares credit information with others, then the following rules apply.(1) Prior Written Notice to Consumer. Prior to requesting a consumer credit report, the employer must provide written notice to the consumer that a report will be requested. The notice must inform the consumer that the report will be used, the source of the report, and a box that can be checked off by the consumer requesting that the reporting agency send the consumer a copy of the report when the employer gets a copy at no charge. (CC §1785.20.5) Note: Federal law does not require the box for request a copy of the report. (2) Prior Authorization from Consumer . Please note that the employer does not have to obtain permission from the consumer to obtain a consumer credit report. Note: Under Federal law, prior authorization from the consumer must be obtained.(3) Certification to Reporting Agency. No certification to the reporting agency is required when an employer orders a credit report. Note: Certification is required under Federal law. Employer’s Summary Of Credit, Background, And Investigation Reports Page 3 of 6© James R. McDade (version 04-14-05) 209-667-2300(4)Copy of Report to Consumer. The first notice to the consumer that a credit report is being requested must contain a box for the consumer to check for requesting a copy of the credit report. If the box is checked, then the employer must inform the reporting agency to provide the consumer with a copy of the report. Note: Under Federal law, a copy of the report must be provided only if adverse action is being taken due to information in the report.(5) Notice of Adverse Action. If any adverse action is taken in response to a credit report, then the employer must (1) give written notice to the consumer of the adverse action, (2) provide the consumer with the name, address and phone number of reporting agency, (3) provide a statement that the report formed a basis in whole or in part for the adverse action, and (4) inform the consumer that (a) the consumer can obtain a copy of the report within 60 days from the reporting agency, and (b) that the consumer may dispute the information with the reporting agency. Note: Similar provisions are required under Federal law.(6)Exceptions. There are no exceptions for providing notice to the consumer prior to obtaining a consumer credit report. Note: There are no exceptions under Federal law either.One should read the law and seek legal assistance if such reports are to be obtained.3.) Collection of Consumer Information from Public Records - CC §1786.53(1) Applicability. An employer who receives, collects, evaluates, reports, or communicates information on a job applicant’s or employee’s (e.g., “consumer's”) character, general reputation, personnel characteristics, or mode of living, for employment purposes, which are matters of public record, and does not use the services of an investigative consumer reporting agency, shall provide that information to the consumer as provided below. Note: There is no equivalent Federal law.(2)Definition of Public Records. "Public records" means records documenting an arrest, indictment, conviction, civil judicial action, tax lien, or outstanding judgment.(3)Provide Copy of Information. The employer shall provide a copy of the related public record to the consumer within seven days after receipt of the information, regardless of whether the information is received in a written or oral form.(4) Waiver of Right to Receive Copy. Any person shall provide on any job application form, or any other written form, a box that, if checked by the consumer, permits the consumer to waive his or her right to receive a copy of any public record obtained pursuant to this section. (5) Wrongdoing Investigations . If any person obtains a public record pursuant to this section for the purpose of conducting an investigation for suspicion of wrongdoing or misconduct by the subject of the investigation, the person may withhold the information until the completion of the investigation. Upon completion, the person shall Employer’s Summary Of Credit, Background, And Investigation Reports Page 4 of 6© James R. McDade (version 04-14-05) 209-667-2300provide a copy of the public record, unless the consumer waived his or her rights to receive a copy of the information.(6) Adverse Action. If any person takes any adverse action as a result of receiving information from a public record, the person shall provide to the consumer a copy of the public record, regardless of whether the consumer waived his or her right to receive a copy of the information.(7) Only One Copy. Nothing in subdivision (a) or (b) requires any person to provide the same information to any consumer on more than one occasion.B. Federal Law SummaryA “consumer report” under federal law includes both a traditional “consumer credit report” that one might obtain from a credit bureau and an “investigative consumer report” where interviewing or collection of data by a hired third party takes place. The Federal Fair Credit Reporting Act of 1970 (as amended in 1997) governs these reports. One should read the law and seek legal assistance if such reports are to be obtained; however, the following outlines the general provisions of the law:(1) Prior Written Notice to Consumer. Before obtaining a consumer report of any kind, the employer must first give the “consumer” (meaning the employee or job applicant) a written notice that a “consumer report” (meaning either a credit report or an investigative report) is being requested for employment purposes. The notice cannot be combined with information regarding any other topics. If the employer is going to seek an investigative consumer report, then the notice must state that the investigative report will include information about the consumer’s character, general reputation, personal characteristics, and mode of living. The notice must also include a statement that the consumer can request a complete and accurate disclosure of the nature and scope of the investigation. The employer must provide the description of the nature and scope of the investigative report to the consumer within 5 days of the request by the consumer. Note: Under California law, the nature and scope of the investigation must be disclosed in the first notice to the consumer that an investigative report is being requested. For credit reports, California law imposes the additional requirement that the notice form contain a box allowing the applicant to request a copy of the report at the same time the employer gets it.(2) Prior Authorization from Consumer . The employer must also secure a written authorization from the consumer prior to ordering any kind of consumer report. (The notice and the authorization may be in the same document, however.) Note: This is not required under California law.(3) Certification to Reporting Agency. The employer must certify to the reporting agency that it has provided notice to the consumer and will comply with the disclosure requirements if any adverse action will be taken because of information contained in the report. Note: This is only required under California law for investigative reports.(4)Copy of Report to Consumer. A copy of the report must be provided to the consumer only if and prior to any adverse action is being taken due to information in the report. Note: Under California law, the first notice to the Employer’s Summary Of Credit, Background, And Investigation Reports Page 5 of 6© James R. McDade (version 04-14-05) 209-667-2300consumer that a credit report is being requested must contain a box for the consumer to check for requesting a copy of the credit report. If the box is checked, then the employer must inform the reporting agency to provide the consumer with a copy of the report. The employer must provide the investigative report to the consumer by the earliest of either (a) the meeting or interview between the employer and the job applicant or employee, or (b) within 7 days of the employer receiving a copy of the report. (5) Written Notice of Intended Adverse Action. Before taking any adverse action (including denial of employment) that is based wholly or partially on the consumer report, the employer must first provide the individual with an actual copy of the report and a written description of their rights to dispute any inaccuracies. The report and description of rights must be provided a reasonable period in advance of actually taking the intended adverse action. So far, it appears that 5 days notice prior to taking any adverse action is the "reasonable period" standard. This will allow the consumer to dispute and correct any misinformation that may be in the credit report. Note: Under California law, the investigative report must be provided to the consumer whether or not any adverse action is taken, and the credit report must be provided if the consumer checks the box requesting one.(6) Written Notice of Actual Adverse Action. When the employer actually takes adverse action (which can include denial of employment) based wholly or partially on the report, the employer must provide to the individual a notice (oral, written or electronic) that provides both of the following:(a) The name address and phone number of the reporting agency that furnished the report, together with a statement that the agency did not take the adverse action and is unable to provide the consumer the specific reasons for it; and (b) Information about the individual's rights to obtain a free copy of the report within 60 days and to dispute any inaccuracies.(7) Workplace Investigations. Under both federal and California law there is an exception for providing prior notice of requesting investigative reports if the employer is investigating wrongdoing by the employee. Federal law requires that a summary describing the nature and scope of the investigation be given to the employee if an adverse action is taken based on the investigation. Remember that investigations done internally (without the use of outside help) are not “consumer reports” or “investigative reports” and need not be disclosed to the employee at any time.(8) Employer Furnished Information. There are requirements placed on employers who furnish information to consumer reporting agencies. Those requirements are not reviewed here. They all boil down to a duty to make sure that any information provided is true, accurate, up-to-date, and complete.(9) Penalties. Willful noncompliance triggers potential civil liability, and in some cases, criminal exposure. Employer’s Summary Of Credit, Background, And Investigation Reports Page 6 of 6© James R. McDade (version 04-14-05) 209-667-2300C.Summary Instructions For Obtaining Reports From Outside AgenciesStep 1Deliver the “Disclosure And Authorization Regarding Request For Consumer Report ” form to the prospective or current employee and obtain the person’s written authorization prior to ordering a credit report or an investigative (background check) report. Also provide the prospective or current employee the handout entitled “A Summary Of Your Rights.” If only a credit report is being sought, then you only need to provide the section entitled “The Fair Credit Reporting Act.” If an investigative (background check) report is being sought, then also include the handout entitled “California Notice Regarding Investigative Consumer Reports”.Step 2Deliver the “Employer Certification Of Compliance For Consumer Reports” form to the credit reporting agency or investigation agency after the “Disclosure And Authorization Regarding Request For Consumer Report ” form is received back from the prospective or current employee authorizing the credit report or investigation (background check) report.Step 3Deliver the “Notice Of Intended Adverse Employment Action” form to the prospective employee or current employee if you intend to take adverse employment action based on the information disclosed in the credit report or investigative (background check) report. In addition, deliver to the prospective or current employee a copy of the credit report and/or investigative (background check) report that formed the basis for the adverse action and another copy of the handout entitled “A Summary of Your Rights under the Fair Credit Reporting Act .” Please remember to not finalize any action for 5 days, as this is to give the employee or prospective employee time to dispute and correct the credit report or investigative (background check) report.Step 4After 5 days have past and if the prospective employee or current employee has not provided adequate evidence to dispute the relevant portion of the consumer report, deliver the “ Adverse Employment Action Notice ” form to notify the person of the finalization of the adverse action taken as a result of information disclosed in a credit report or investigative report.D.Summary Instructions For Obtaining Public Records In-houseStep 1"Public records" means records documenting an arrest, indictment, conviction, civil judicial action, tax lien, or outstanding judgment.Step 2Provide copy of information (whether written or oral), unless there is investigation of wrongdoing.Step 3Provide copy of information at end of investigation of wrongdoing, unless consumer waived right to receive a copy.Step 4Provide copy of information at end of investigation of wrong doing if adverse action is taken, regardless of waiver to receive a copy.