Employers Required to Use New FCRA Notices come January 1, 2013

This blog post originally appeared in an Employer Alert published by McNees Wallace & Nurick LLC's Labor and Employment Group in October 2012. The Employer Alert can be accessed here.

The newly created Consumer Financial Protection Bureau (“CFPB”) recently issued regulations that modify the notices required under the Fair Credit Reporting Act (“FCRA”). The new regulations include one change that is significant to employers who regularly obtain criminal background reports, credit history reports, and other background checks on their applicants and employees.

The CFPB's regulations modify the “Summary of Consumer Rights under the FCRA.” The FCRA requires that employers provide this standard notice to applicants and employees when, among other things, a pre-adverse action notice is sent. The regulations require that employers begin using the new form on January 1, 2013; until then, employers should continue to use the old form.

The biggest change to the notice is that consumers are now directed to the CFPB to obtain information about their rights under the FCRA, rather than to the Federal Trade Commission. (The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama in 2010, transferred rulemaking authority over the FCRA to the CFPB.) The CFPB made similar changes to the notices that consumer reporting agencies are required to provide.

Model forms are available in the appendix to the FCRA regulations at 12 C.F.R. § 1022 and likely will be posted on the CFPB’s website, www.consumerfinance.gov, come the new year. The new form can also be downloaded here (.pdf).

In light of the significant changes to the regulatory framework surrounding the FCRA and the increasing concern about consumer privacy, we can expect that this will not be the CFPB’s last word on employee screening and background checks. We will keep you updated on additional changes to the FCRA in the future.

Managing a Business and its Employees in Financial Crisis Requires Communication from HR

The specter of business failure and personal financial setbacks wreak havoc on employee morale challenging Human Resources with dual management problems. First, HR needs to formulate a communication strategy to address the concerns of employees surrounding job security and compensation. Employee jitters surround the viability of their employer and the security of their jobs. Retirement savings evaporate as the stock market plummets leading some to forego matching 401k contributions. Compensation packages and incentives tied to stock continue their downward spiral. Wordsmith the message that the CFO might send out: “They are lucky to have a job.”

Second, HR must manage the collateral effects of an employee’s personal financial problems, which can lead to bankruptcy, foreclosure and even divorce, any of which may influence his or her job and job performance. Businesses must be prepared to respond to employee performance issues created by financial problems. Employers should be aware of legal limitations placed on their actions with regard to an employee’s financial problems. In addition, human resource professionals should appreciate the relationship between their performance management program and other resources to address employee issues created by financial distress.

 

Pennsylvania and federal laws limit actions employers may take against employees that file for bankruptcy or are subject to wage attachments. Many employers, particularly those in the financial sector, face customer relation problems when one of their employees does not pay his or her bills or files for bankruptcy. Legal limitations on employer responses are as follows:

  • Garnishment/Attachment of Wages. Pennsylvania prohibits garnishment/attachment of wages for the repayment of personal debts, except in limited circumstances for child support, alimony or student loans.   Employees may not be disciplined, discriminated against or discharged because of wage garnishments.
  • Employee BankruptcySection 575 of the Bankruptcy Act protects employees and applicants from discrimination if an individual:(1) is or has been a debtor under this title or a debtor or bankrupt under the Act; (2) has been insolvent before the commencement of a case under the Act or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Act. Courts have limited the reach of this provision by requiring that the discrimination be "solely because" of the individual's bankruptcy participation.
  • Worries about Temptation for Theft. Businesses may become concerned that an employee in financial distress may be more likely to embezzle and react by trying to find out the scope of an employee’s credit problems. The Fair Credit Reporting Act limits an employer’s use of employee credit information. A business’ usual financial controls should be uniformly applied, but, if inadequate, should be revised for all employees.

Employees experience financial distress are subject to performance problems including declining productivity, absenteeism and depression.  The usual performance management tools can be used: however, special attention should be paid to other resources like the EAP and Debt/Credit counseling.