September 24th, 2018 | Joe Rotondo, Sterling Talent Solutions

New FCRA Amendments Update Security Freeze Notices

The background screening industry is highly regulated by federal, state and local laws. The Fair Credit Reporting Act (FCRA) is a federal consumer protection law dating back to the 1970’s that governs consumer background checks. The services and programs that a Consumer Reporting Agency (CRA), such as Sterling provides, fall under the regulation of the FCRA. The Consumer Protection Bureau (CFPB), created under the Dodd-Frank Act, enforces the rules dictated under the FCRA.

In May 2018, Congress passed the Economic Growth, Regulatory Relief and Consumer Protection Act, which amends sections of the Dodd-Frank Act. Congress made many changes to the law, with many amendments impacting the banking industry. However, there were two amendments, Section 301 and 302 which contain updates which will amend the FCRA. The three modifications are:

• An increase in time for a CRA to submit a fraud alert
• A National Security Freeze to protect consumer credit
• A protection for veteran credit and active duty military consumer credit

The amendments related to consumer credit protection go into effect on Sept. 21, 2018, while the amendments in Sec. 302 for veteran credit protection go into effect on May 24, 2019. For the purposes of background screening, we will only focus on the first two amendments to the Act.

Increased Consumer Credit Protection under the FCRA: Security Freeze Notices Update

Section 301 of the updated law increases consumer credit protection within the FCRA. According to Big Business Information Group, Section 301 amends Section 605A of the FCRA and allows a consumer one year to submit a fraud alert, notifying the nationwide credit bureaus that the consumer “has been or is about to be a victim of fraud.” In the previous law, Section 605A gave the consumer 90 days to submit a fraud alert. The law also requires that credit bureaus allow consumers to institute an unlimited number of security freezes and unfreezes per year on their credit report.

Section 301 also implements a national security freeze that allows a consumer, free of charge, to prohibit credit bureaus from “disclosing the contents of a consumer report.” A consumer must file a formal request and provide proper identification. Big Business Information Group goes on to explain, “Nationwide credit bureaus must properly instruct consumers on how to remove a security freeze and must notify consumers of their “Right to Obtain a Security Freeze,” when required by Sec. 609 of the FCRA.” A security freeze is a restriction that prohibits a CRA from disclosing the contents of a consumer report to someone requesting the report. The act does allow for certain exceptions when a security freeze will not apply including when a consumer report is conducted to pursue a person’s financial obligations, evaluate a person’s background for potential employment, or verify a person’s identity for investigating potential fraud.

Credit bureaus must create a webpage that informs consumers how they can request a security freeze, initial fraud alert or active duty fraud alert. The webpage must also explain to consumers how to opt-out of using consumer reports for credit solicitations purposes.

The Updated Law’s Impact on Background Screening

It has yet to be determined how the updated law will impact the credit report aspect of background screening. According to Littler, “Even if a security freeze is effective, though, the Act provides that the freeze does “not apply to the making of a consumer report for the use of any person using the information for employment, tenant or background screening purposes. Thus, at a high level, it appears that the Act’s FCRA amendments should not impact employers.” However, the law provides for a new notice entitled “Consumers Have the Right to Obtain a Security Freeze” to be provided in certain circumstances.

Sterling will be updating both our background screening platforms per a compliance requirement to include notification to the candidate that they have the right to obtain a security freeze on their credit report. We will include the notice with the Federal Summary of Rights as well as any state-specific Summary of Rights (based on the current state of residence).

Sterling strives to keep its clients up to date on laws pertaining to the background screening industry. To find out more about FCRA Compliance and information for the background screening industry, sign up for our quarterly FCRA Quarterly Update webinars and stay tuned to our blog and website for compliance updates.

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