Whether you are the subject or requestor of a consumer report it’s very important to understand what an “Adverse Action” is and what that means to you.
A consumer report can be a criminal background check, a credit check, the verification of previous employment or any other information about the subject that is provided by a consumer reporting agency (CRA) and is then used by the requestor as a factor in determining the consumer’s eligibility to borrow money, get insurance, be hired, rent a property, etc. After recieving a consumer report the end user will decide whether they will make an offer to the subject and what the terms will be. Based on the information in the consumer report:
- a property manager might decided to rent to the consumer, but they could require an additional deposit or co-signer because the individual doesn’t have an previous rental history.
- an insurance company may decide to raise the consumer’s rate because of a collection on their credit report.
- a financial institution might offer the consumer a loan at a higher interest rate because they recently filed bankruptcy.
- an employer may decide not to offer the consumer a job because they lied about their educational history.
Each of the examples above and any decision adverse to the interests of the consumer is considered an “Adverse Action” by the Fair Credit Reporting Act (FCRA) and places obligations on the end user and offers protections to the consumer.
Any end user taking adverse action(s) based on any information provided in a consumer report is required to provide the consumer with notification of the adverse action, contact information for the CRA that provided the report, and notification of the consumer’s right to obtain a free copy of the report and to dispute the accuracy of completeness of the report if the information provided is not correct. If the report includes a credit score (a numerical value or categorization that predicts certain credit behaviors) then adverse action notification must include the score, the scoring range, the key factors determining the score, the date it was created on and information about the score provider. If the report is being used for employment purposes (hiring, retention or promotion) the end user has an even greater burden and is not able to take any adverse action before providing the consumer with a copy of the report and a description of their rights. This notification is commonly called a Pre-Adverse Action notification. Groups with volunteers should note that the Federal Trade Commission (FTC) has stated that “employment purposes” is liberally interpreted to include volunteers so these notification obligations would apply for volunteer background checks as well.
These end user obligations can be complicated so check with your CRA and qualified legal counsel if you have any questions.