CFPB Says Employers Must Comply with FCRA When Hiring

In a Consumer Financial Protection Circular, the agency warned employers that they cannot "make employment decisions utilizing background dossiers, algorithmic scores, and other third-party consumer reports about workers without adhering to the Fair Credit Reporting Act."

The CFPB stated that while background checks and algorithmic assessments may support legitimate business purposes, the use of these reports without adherence to FCRA regulations—such as obtaining a worker's permission and providing notice before taking adverse action—could violate federal law. The CFPB explained that background dossiers and algorithmic scores obtained from third parties are often classified as "consumer reports" under the FCRA and carry specific compliance requirements for employers.

The CFPB warned that employers' reliance on these reports to monitor and assess workers' productivity or potential risks must be balanced with workers' rights to transparent evaluation. The agency underscored that third-party providers offering such reports are subject to FCRA obligations to ensure data accuracy and fairness, emphasizing that workers must be informed of the data used in employment decisions that may impact their job security.