CFPB issues advisories on background checks

The Consumer Financial Protection Bureau issued new advisories addressing inaccurate background checks and credit reporting on Thursday, in part aimed to give individuals increased access to their files and opportunities to identify sources.

Tied to regulations within the Fair Credit Reporting Act, the new opinions come after a 2023 public inquiry from the CFPB and Federal Trade Commission, which asked consumers to describe their experience with background checks, used by employers and landlords to screen applicants. In the more than 600 responses received, many renters described the years of negative impact erroneous information on their background reports played in limiting housing opportunities and the difficulties they had in removing data. 

“Background check and other consumer reporting companies do not get to create flawed reputational dossiers that are then hidden from consumer view,” said CFPB Director Rohit Chopra, in a press release. “Background check reports, and all other consumer reports, must be accurate, up to date and available to the people that the reports are about.”

In related advisory opinions issued Thursday, the CFPB puts the onus on companies issuing background checks, who are governed by the FCRA, indicating they “must maintain reasonable procedures to avoid producing reports with false or misleading information.”

Among their obligations, companies must prevent reporting of information from public records that have been expunged, sealed or otherwise restricted, the CFPB said. Background checks also must properly note outcomes of all arrests, criminal charges, evictions or other court filings and eliminate duplicate information.

The CFPB underscored that outdated negative data needed to be removed from background checks after a given period as well, with timing dependent on the type of information and date of occurrence.

“For example, a criminal charge that does not result in a conviction generally cannot be reported by a consumer reporting company beyond the seven-year period that starts at the time of the charge.”

Consumer advocacy groups voiced their approval to the CFPB for providing “a desperately needed clarification” of rules.

“Kudos to the CFPB for helping renters, who continue to face an ongoing affordable rental housing crisis, and workers who often face huge barriers to getting jobs due to criminal records,” said Ariel Nelson, staff attorney at the National Consumer Law Center, in a statement.

Consumers also have the right to view the information on their credit files, with disclosure “a critical component” behind a person’s right to address faulty data and correct misinformation, the CFPB noted in the guidance.

Specifically, individuals would not need to use specific language or industry terminology, including words such as “file” or “complete file,” when requesting to view their own information and must be provided with the data “in a way an average person could understand.” The CFPB advised information must be formatted, so a consumer could easily identify inaccurate information and dispute it. 

Providers of the information within a credit file, including original sources, intermediaries and vendors, would also need to be identified. 

Companies in willful noncompliance of FCRA provisions run the risk of incurring damages equal to $1,000 for each violation, in addition to punitive costs to the extent courts allow and legal fees. 

The CFPB’s advisories come after the agency proposed several changes to the FCRA last year, including a ban on consideration of medical debt, drawing the ire of debt collectors and within the financial services industry who worry about how predictive credit files will be without it. (The mortgage industry has some mixed feelings on the matter, though, given that some lenders have seen advantages in smaller-scale exceptions for medical debt.)

In December, members of Congress introduced a bill that would limit the use of trigger leads by amending the FCRA. The bill received the support of several housing industry trade groups, including the Mortgage Bankers Association and Community Home Lenders of America.