The Consumer Protection Financial Bureau ("CFPB") announced on October 29, 2015, that it took action against two of the largest employment background screening report providers, General Information Services ("GIS") and its affiliate e-Background-checks.com, Inc. ("e-Background-checks.com") for alleged violations of the Fair Credit Reporting Act. The press release also linked a Consent Order, by which GIS and e-Background-checks.com agreed to pay a $2.5 million penalty and provide $10.5 million to affected consumers, among other sanctions.
The CFPB's action is not only a warning for background screening companies to ensure that they have appropriate policies and procedures in place, but also a warning to employers that rely upon those companies as third-party vendors. The CFPB's 2012-03 Bulletin instructs that supervised banks and nonbanks must monitor their vendors for compliance with federal consumer financial law, and that supervised banks and nonbanks may be held liable for their vendors' noncompliance. Although the CFPB took action directly against the background screening providers in this enforcement action, that is not to say that the CFPB will not act against a supervised bank or nonbank relying upon a background screening company that provides inaccurate reports.
Director Richard Cordray reported that GIS and e-Background-checks.com failed to "take basic steps to provide accurate background screening reports to employers about job applicants." Those steps included requiring employers to provide consumer's middle names; researching consumers with common names; and auditing the accuracy of reports provided.
The CFPB noted that those failures resulted in inaccurate reports that included criminal records attached to the wrong consumers, dismissed and expunged records, and misdemeanors reported as felony convictions. The CFPB further noted that those inaccuracies can result in consumer harm such as the denial of employment, missed economic opportunity, and reputational harm to otherwise qualified applicants.
The risk of inaccurate reports extends beyond the consumer harm noted by the CFPB in its enforcement action against GIS and e-Background-checks.com. Supervised banks and nonbanks should also be on alert that inaccurate background reports impact loan originator employment and may result in possible violations of the Truth in Lending Act. Supervised banks and nonbanks should therefore take measures to ensure that third party background screening vendors take the basic steps identified by the CFPB to provide accurate screening reports—requiring employers to provide consumer's middle names; researching consumers with common names; and auditing the accuracy of reports provided.
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