Archive for March, 2016

When is a report not a “consumer report?” When it’s for the banking industry. Maybe.

March 4, 2016 Leave a comment

This month’s post will comment on the FCRA’s provision at 15 U.S.C. Sec. 1681a(y), which says that a report is not a “consumer report” (and thus not subject to FCRA liability) if it “is made to an employer in connection with an investigation of— (i) suspected misconduct relating to employment; or (ii) compliance with Federal, State, or local laws and regulations, the rules of a self-regulatory organization, or any preexisting written policies of the employer.”

Federal law requires banks to check the criminal backgrounds of their employees.  Two separate statutes – FIRREA and the SAFE Act – both tell banks not to employ certain employees if they have been “involved” in a “dishonesty crime.”  I put those words in quotes because the statutes provide fairly lengthy and convoluted definitions of what it means to be involved in a dishonesty crime.  For present purposes, the important thing is that a person is “involved” in such a crime if he was either:  a) convicted of it; or b) sentenced pursuant to a pretrial diversion program (e.g., pled guilty per a deal that there would be no jail time, and the charge would be dismissed if he completed probation without incident).  This is important because normally, a consumer report cannot contain arrest records that are more than seven (7) years old.  15 U.S.C. Sec. 1681c(a)(5).  But here, the banks have to look at arrest records, to assess whether a person went through a pretrial diversion program.

This background presents the following question:  if a bank, in its effort to comply with FIRREA and the SAFE Act, contracts with a background screening company to obtain special reports that will contain any arrest records, even ones that normally could not be reported per Sec. 1681c(a)(5), are those reports “consumer reports?”  Or are they excluded per the exception at Sec. 1681a(y)?

Two federal courts (at least) have answered this question in two different ways.  The District of Minnesota held that such reports are NOT consumer reports in Martin v. First Advantage Background Servs. Corp., 2014 U.S. Dist. LEXIS 41098 (D. Minn. Mar. 26, 2014).  The Eastern District of Virginia held that such reports ARE consumer reports in Manuel v. Wells Fargo Bank, 123 F. Supp. 3d 810 (E.D. Va. 2015).  Full disclosure:  I was the defense lawyer in Martin.  Notably, both cases involved the reports that Wells Fargo (a bank) obtained from First Advantage (a background reporting company).

In Martin, First Advantage presented evidence that Wells Fargo asked it to create reports that were designed to comply with FIRREA and the SAFE Act (by including arrest records that would otherwise be precluded in a consumer report), and that these reports were not “consumer reports” because they were created and obtained “in connection with an investigation of … compliance with Federal, State, or local laws and regulations” under Sec. 1681a(y).  The Court agreed.

In Manuel, Wells Fargo argued that it was not required to have job applicants sign special FCRA-compliant consent forms before it pulled reports on them from First Advantage, because the First Advantage reports were not “consumer reports” per Martin.  The court disagreed on multiple grounds, two of which seem especially salient:  a) the provision in Sec. 1681a(y) refers to a report “in connection with an investigation,” and Wells Fargo conducted no larger investigation (it just ordered the report); and b) “the exception would swallow the rule with respect to employment uses of background checks under the FCRA, because there are a number of federal, state, and local laws excluding certain individuals from certain types of employment” (i.e., every report that Wells Fargo pulled would be exempt from the FCRA).

Both courts wrote reasonable and thoughtful opinions:  you can see the merits of each position when you read them.  Ultimately, though, I wonder if the Manuel court considered – or if Wells Fargo’s lawyers asked it to consider – the flip side of its argument.

The Manuel court was obviously worried about the repercussions of saying that criminal background reports in the banking industry are not subject to the FCRA:  the FCRA is a consumer-protection statute, and it would seem odd to exclude a huge group of consumers (people who want to work for banks) from its protections.  I get that.

But consider the flip side.  Under FIRREA and the SAFE Act, banks MUST obtain and review arrest records that normally cannot be reported under Sec.  1681c(a)(5).  If the reports that the banks pull have arrest records in them, then those reports automatically violate the FCRA.  That leaves the banks in an impossible position:  if they don’t review arrest records, they violate FIRREA and the SAFE Act, but if they do review arrest records, they violate the FCRA.  It seems reasonable to me to construe Sec. 1681a(y) as Congress’s answer to this difficulty:  it allows banks to get the records they need under FIRREA and the SAFE Act, without having to worry that they will violate the FCRA in the process.

If Wells Fargo raised this issue to the Manuel court, there is no mention of it in the opinion.  Lawyers in future cases might do well to make it.



Categories: 1681a(y)