Be careful when outsourcing your background checks

The potential pitfalls of using a consumer reporting agency and maintaining compliance with the federal Fair Credit Reporting Act (FCRA) were highlighted in a recent decision by the federal district court in Richmond, Virginia. In the case, job applicants filed a class action lawsuit against Wells Fargo Bank and the First Advantage Background Services, a consumer reporting agency the bank retained to perform background checks.

Facts

According to the class action suit, the language of the disclosure authorization form used by First Advantage failed to comply with the FCRA's disclosure requirements. Among other things, the applicants argued the form, which contained a release of FCRA rights, was effectively hidden in Wells Fargo's lengthy job application form. As a result, the applicants said First Advantage had no legal right to run a background check or provide a background report to the bank.

Court's decision

Central to the federal court's assessment of the applicants' claims was whether they could establish an actual injury as required by the U.S. Supreme Court's 2016 decision in Spokeo v. Robins. In that case, the Supreme Court said anyone pursuing an FCRA claim must show “an invasion of a 'legally protected interest' that is 'concrete and particularized' and 'actual or imminent,' not conjectural or hypothetical.”