Last updated Oct 21, 2020
Disclaimer: This website is neither an exhaustive summary of the Fair Credit Reporting Act (FCRA) nor legal advice for you to use in complying with it. Instead, it provides background information to help you better understand the FCRA and how it can apply to your business. This legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances, so you should consult an attorney if you’d like advice on your interpretation of this information or its accuracy. You may not rely on this paper as legal advice, nor as an endorsement of any particular legal understanding.
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).
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