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How Internet Databases Fit Into Employer Requirements With Fair Credit Reporting Act

    Client Alerts
  • June 21, 2019

Most employers are aware that in order to conduct a third-party background search on an employee or applicant, they must obtain advance authorization and comply with the notice requirements of the federal Fair Credit Reporting Act (FCRA). As online information sources have expanded, federal courts have been called upon to answer what types of services constitute regulated consumer reporting agencies. According to a new decision from the Second Circuit Court of Appeals, a subscription-only internet database was not a consumer reporting agency subject to FCRA requirements.

In Kidd v. Thompson Reuters Corp., the plaintiff sued the information firm under FCRA, alleging that she was denied employment as the result of a false criminal background check using the defendant’s platform. The defendant obtained summary judgment on the basis that it was not a consumer reporting agency subject to FCRA. The Second Circuit affirmed the dismissal based on the statute’s definition of a consumer reporting agency. According to the court, only those services that actually intend to provide consumer reports fall under the definition of a consumer reporting agency. Merely providing customers with access to information does not meet this definition, even if the user ends up basing consumer or employment decisions on the search results.

In this case, the defendant posted disclosures and took additional measures to try to avoid use of its database information for consumer reporting purposes. This decision creates a gray area for internet-based database services. Employers may be tempted to use such services to avoid FCRA consent and disclosure requirements. However, this decision was based on the specific facts surrounding the database service in question and may not apply to other online resources