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End users must request reports for a permissible purpose. Examples of permissible purposes include subpoenas or court orders, written instructions from the consumer, credit transactions with a consumer, employment purposes with written authorization from a consumer, insurance underwriting purposes, tenant screening, and national security investigations.
Congress has limited the use of consumer reports to protect consumers’ privacy. All users must have a permissible purpose under the Fair Credit Reporting Act to obtain a consumer report. Section 604 contains a list of the permissible purposes under the law. (FCRA sections in the U.S. Code, 15 U.S.C. § 1681 et seq.) These are:
- As ordered by a court or a federal grand jury subpoena. Section 604(a)(1).
- As instructed by the consumer in writing. Section 604(a)(2).
- For the extension of credit as a result of an application from a consumer, or the review or collection of a consumer’s account. Section 604(a)(3)(A).
- For employment purposes, including hiring and promotion decisions, where the consumer has given written permission. Sections 604(a)(3)(B) and 604(b).
- For the underwriting of insurance as a result of an application from a consumer. Section 604(a)(3)(C).
- When there is a legitimate business need, in connection with a business transaction that is initiated by the consumer. Section 604(a)(3)(F)(i).
- To review a consumer’s account to determine whether the consumer continues to meet the terms of the account. Section 604(a)(3)(F)(ii).
- To determine a consumer’s eligibility for a license or other benefit granted by a governmental instrumentality required by law to consider an applicant’s financial responsibility or status. Section 604(a)(3)(D).
- For use by a potential investor or servicer, or current insurer, in a valuation or assessment of the credit or prepayment risks associated with an existing credit obligation. Section 604(a)(3)(E).
- For use by state and local officials in connection with the determination of child support payments, or modifications and enforcement thereof. Sections 604(a)(4) and 604(a)(5).
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Background screeners must also operate with “reasonable procedures” to assure “maximum possible accuracy” of the information concerning the individual. (FCRA sections in the U.S. Code, 15 U.S.C. § 1681 et seq.)
- End-users must provide certification to comply with permissible purpose requirement
- End-users must (1) identify themselves, (2) certify the purpose for obtaining reports, (3) certify the information in the report will be used for no other purpose (Blanket certification).
- Background screening companies have obligations to show “reasonable procedures” to ensure access to only permissible users.
- Certify to users that request will be used for a permissible purpose.
Examples of “reasonable procedures” by tenant screeners
- Conduct on site visits/inspection of users.
- Check end-user’s business license or documents.
- Check end-user’s references.
- Check publicly available information regarding end-user.
- Periodic audits.
Examples of things that are not permissible include curiosity, litigation in connection with attempts to collect a debt, marketing, or criminal sanctions. Employees of CRAs who knowingly provide consumer reports to those who do not have a permissible purpose could face up to 2 years of imprisonment.
Continue to Adverse Action Notification, or jump to a different article.
- Fundamentals of The Fair Credit Reporting Act (FCRA)
- Industry Players Under FCRA
- Accuracy and Reasonable Procedures
- FCRA Permissible Purpose
- Adverse Action Notification
- Reinvestigation, Disclosures, Disposal of Consumer Information
- What is a Consumer Report?
- A summary of consumer rights under FCRA
- FCRA Litigation
- State Versions of FCRA and FCRA California