Employers that use algorithmic scores and other third-party consumer reports to gather information about potential hires and current employees may violate Fair Credit Reporting Act rules depending on how they train their algorithms, the Consumer Financial Protection Bureau said in a circular issued today. As a result, employers that use consumer reports must comply with FCRA obligations, including obtaining a worker’s permission to procure a report and providing notices before and upon taking adverse actions. They are also prohibited from using consumer reports for purposes other than the permissible purposes described in the FCRA.
“Similar to how credit reports and credit scores are commonly used by lenders, employers commonly purchase consumer reports to make employment decisions about workers,” the CFPB said. Such reports may be used to predict worker behavior, reassign workers, issue warnings or other disciplinary actions, or monitor social media activity.
Among other things, the FCRA requires employers to have a dispute process for workers who complain that the information about them is wrong. It also prevents background screeners from sharing consumer reports containing workers’ data with employers or others unless it is for a “permissible purpose” described under the law.
