Background Screening

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On April 3, both the City and County of San Francisco amended the Fair Chance Ordinance (“FCO”) – their existing ban-the-box law – to align it with the new, corollary California law (AB 1008) that took effect on January 1, 2018. San Francisco’s new amendments take effect on October 1, 2018.

The amendments to the existing FCO include:

  • Removing the restriction that employers, housing providers, contractors, and subcontractors may inquire about, require disclosure of, and base housing and employment decisions on convictions for decriminalized behavior that are seven years old or less. There is no seven-year limitation in the amended FCO.
  • The FCO will now apply to employers that employ five or more persons (previously it was 20 or more).
  • A first violation can result in a penalty of up to $500, whereas previously none was assessed.
  • A second violation can result in a penalty of up to $1,000 (previously up to $50). Subsequent violations can result in penalties of up to $2,000 (previously up to $100).
  • If multiple people are impacted by the same procedural violation at the same time, the violation would be treated as one violation for each impacted person (previously treated as a single violation rather than multiple violations).
  • Penalties must be paid to the person impacted by the violation, not the City/County of San Francisco.
  • The right to sue is no longer limited to the City Attorney. Any employee or applicant whose rights have been violated can sue.
  • Employers are now prohibited from inquiring about, requesting disclosure of, or utilizing a person’s conviction history until after a conditional offer of employment has been made (the previous measure limited inquiry until after either a live interview or conditional offer).

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.

We are pleased to announce that Troutman Sanders attorneys David Anthony, Cindy Hanson and Ronald Raether will be panelists for a NAPBS webinar titled, “Updates, a Case Study & Legal Developments in Background Screening.”

The webinar will discuss recent case studies and case law developments that are currently affecting the background screening industry. The webinar discussion will include an update on Spokeo, Inc. and the effects of the decision by the United States Supreme Court that occurred almost two years ago; and the amicus brief filed in January of this year will also be included in discussion on behalf of NAPBS. NAPBS supports Spokeo, Inc.’s second petition for certiorari to the U.S. Supreme Court and will be discussed.

The new petition has requests that will make the U.S. Supreme Court revisit its prior ruling and add clarity and justification to the divergence in lower court rulings over the past two years. The panelists that have been chosen to speak will provide their own overview of relevant cases with implications for employers and businesses in the background screening industry.

We are pleased to announce that Troutman Sanders partners David Anthony, Cindy Hanson,  Ron Raether, and Tim St. George will be featured panelists at the National Association of Professional Background Screeners (“NAPBS”) 2018 Mid-Year Legislative & Regulatory Conference to be held April 15-17, 2018 in Arlington, Virginia.

David, Cindy and Tim will speak on a panel entitled, “Increasing Litigation Against Wholesalers: What it Means for the Industry as a Whole, How to Prepare and Defense Strategies.” An increasing number of lawsuits are being filed nationwide against public records vendors and “wholesalers” of information, claiming that the transmission of public records renders the company a consumer reporting agency for purposes of application of the Fair Credit Reporting Act. These cases raise unique issues and potential defenses, as well as issues of insurance coverage. Moreover, such claims also raise related concerns for background screening companies. This session explores those issues and how best to prepare for such a lawsuit.

Ron will speak on a panel entitled, “Driving Records: Putting Your Compliance in Gear.” Employment screening companies offering driving records must navigate both the Fair Credit Reporting Act and the Drivers Privacy Protection Act. With litigation under the DPPA increasing, this presentation offers a check under the hood for compliance with both of these laws and a chance to tune up compliance.

For additional conference information or to register, click here.

Troutman Sanders’ Financial Services Litigation practice has extensive experience litigating cases under the Fair Credit Reporting Act.  We have served as counsel in more than 1,500 FCRA cases nationwide, including over 100 class actions.  We are called upon by users, furnishers, consumer reporting agencies, and credit reporting agencies to assist in FCRA litigation and compliance issues pertaining to the full spectrum of FCRA-regulated activities, including credit reporting, consumer credit, and insurance transactions.  Troutman Sanders has defended actions under all of the substantive provisions of the FCRA, including every provision of the FCRA addressing the background screening process.  Additionally, Troutman Sanders has a strong tradition in FCRA compliance counseling, including FCRA audits.  We utilize this compliance expertise to strengthen our clients’ regulatory positions, both prior to and subsequent to litigation.

Under the Fair Credit Reporting Act, when a potential employer is considering using a background check to deny an applicant employment, the employer must follow a prescribed adverse action process. For qualifying transportation employers, this means the employer must provide the applicant with a notice of adverse action within three days of the final adverse decision. The District Court for the Northern District of Illinois, however, recently confirmed that even if an employer fails to follow the proper procedure, an applicant may not have standing to bring an adverse action claim if the background check at issue is accurate. This could be a significant decision for employers facing adverse action claims from applicants who indisputably have a disqualifying conviction in their background.

Specifically, in Ratliff v. A&R Logistics, Inc., plaintiff Jerome Ratliff, Jr. claimed that A&R Logistics declined to hire him based on his background check without following a proper adverse action process. In response, A&R Logistics moved to dismiss the complaint on the ground that Ratliff had not suffered any injury-in-fact stemming from the alleged violation and, therefore, had no standing. According to A&R Logistics, Ratliff could not show any injury-in-fact because the background check at issue was accurate.

The Court conducted its standing analysis in two parts. It first considered whether Ratliff had suffered an “informational injury” that could satisfy the injury-in-fact requirement for standing. The Court found that a plaintiff could show “informational injury” if a third party was disseminating inaccurate information about him or her that could cause concrete harm. However, because Ratliff failed to allege that the background check on him contained any inaccuracies, he could not show any “informational injury.” Effectively, Ratliff could not show that he suffered any appreciable “real life” injury by not receiving a copy of his accurate background check.

The Court also considered whether the failure to provide Ratliff with a background check constituted an “invasion of privacy” sufficient to demonstrate injury-in-fact. The Court quickly disposed of that argument. In the Court’s view, the FCRA’s adverse action provision is not designed to protect consumer privacy. As a result, Ratliff could not show that the statutory violation at issue constituted a privacy invasion sufficient to support an injury-in-fact.

Ultimately, the Court’s decision in Ratliff follows a reasonable approach to injury-in-fact analysis that is rooted in the Supreme Court’s Spokeo decision. Simply stated, the violation of a statute alone does not constitute an injury-in-fact for standing purposes without an accompanying real-world injury.

 

On March 21, the House Financial Services Committee voted 35-25 to approve a bill that would amend the Fair Debt Collection Practices Act to exclude lawyers and law firms from the definition of a “debt collector” when such entities are engaged in “activities related to legal proceedings.” Introduced by Rep. Alex Mooney (R-W.Va.) in February, H.R. 5082, titled the “Practice of Law Technical Clarification Act of 2018”, will also amend the Consumer Financial Protection Act of 2010 to restrain the Consumer Financial Protection Bureau’s oversight and enforcement authority over lawyers.

If the bill proceeds, it would add the following language to definition of a debt collector under the FDCPA:

The term [debt collector] does not include –

****

(F) any law firm or licensed attorney, to the extent that –

(i) such firm or attorney is engaged in litigation activities in connection with a legal action in a court of law to collect a debt on behalf of a client, including –

(I) serving, filing, or conveying formal legal proceedings, discovery requests, or other documents pursuant to the applicable statute or rules of civil procedure;

(II) communicating in, or at the direction of, a court of law (including in depositions or settlement conferences) or in the enforcement of a judgment; or

(III) any other activities engaged in as a part of the practice of law, under the laws of the State in which the attorney is licensed, that relate to the legal action; and

(ii) such legal action is served on the defendant debtor, or service is attempted, in accordance with the applicable statute or rules of civil procedure.

The bill now moves to the full House for further consideration. Should it proceed to become law, the bill would undoubtedly have a significant impact on the debt collection industry as a whole as well as the role of the CFPB in regulating the industry.

We will continue to monitor this bill as it moves through the legislative process.

On March 20, Naples Hotel Group LLC removed a putative Fair Credit Reporting Act class action to the U.S. District Court for the Middle District of Florida. The complaint, originally filed February 13 in the Ninth Judicial Circuit Court in Orange County, Florida, alleges that Naples improperly obtained and used consumer reports about prospective and existing employees – through an outside consumer reporting agency – without complying with the FCRA’s disclosure and authorization requirements. The lead plaintiffs, Shawana Sanders and Kenyatta Williams, are former employees of Naples.

The putative class is defined as all Naples Hotel Group employees and job applicants in the United States who were the subject of a consumer report procured by the company within five years of the complaint’s filing.

According to the plaintiffs, the authorization forms used to obtain their consumer reports during the initial application process contained “extraneous provisions” that distracted the applicants from understanding the import of the disclosure. According to the plaintiffs, Naples knew it was required by law to provide a stand-alone form, separate from its employment application, before obtaining and using consumer reports. They allege that Naples further violated the FCRA when it took adverse action against them.

“Without clear notice that a consumer report is going to be procured, applicants and employees are deprived of the opportunity to make informed decisions or otherwise assert protected rights,” according to the complaint.

These types of FCRA disclosure form claims are incredibly popular with the plaintiffs’ bar, and judicial decisions vary widely based on circuit and fact pattern. Last year in Syed v. M-I, LLC, the Ninth Circuit Court of Appeals issued a significant decision on the discrete issue of FCRA willfulness as applied to disclosure form claims, ultimately concluding that the prospective employer willfully violated the FCRA by including a liability waiver in its background check disclosure form. Troutman Sanders previously reported on the Syed decision. 

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.

On March 13, Washington Governor Jay Inslee signed bill HB 1298, the Washington Fair Chance Act (“WFCA”), which will make it unlawful for an employer to include any question on any application for employment, inquire either orally or in writing, receive information through a criminal history background check, or otherwise obtain information about an applicant’s criminal record (arrests or convictions) until after the employer initially determines that the applicant is “otherwise qualified” for the position.

The Act goes into effect on June 7, 2018. Washington is the eleventh state nationwide to enact a “ban-the-box” law that covers both public and private sector employers. All West Coast states and some West Coast cities (including Los Angeles, Portland, and Seattle) have now enacted similar laws.

“Employer” is defined broadly under the WFCA to include “public agencies, private individuals, businesses and corporations, contractors, temporary staffing agencies, training and apprenticeship programs, and job placement, referral, and employment agencies.”

The new law will not apply to:

  • Any employer hiring a person who will or may have unsupervised access to children under the age of 18 or a vulnerable adult or person as defined elsewhere in state law;
  • Any employer, including a financial institution, who is expressly permitted or required under any federal or state law to inquire into, consider, or rely on information about an applicant’s or employee’s criminal record for employment purposes;
  • Certain law enforcement or criminal justice agencies;
  • Employers seeking non-employee volunteers; or
  • Any entity required to comply with the rules or regulations of a self-regulatory organization, as defined in section 3(a)(26) of the Securities and Exchange Act.

Penalties will start with a notice of violation and offer of agency assistance for the first violation. A second violation can result in monetary penalties up to $750 and up to $1,000 for each subsequent violation.

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.

Nearly a decade after the financial crisis of 2007-08, the Senate recently advanced the most significant overhaul of the Dodd–Frank Wall Street Reform and Consumer Protection Act, signed into federal law by President Barack H. Obama on July 21, 2010. Specifically, on March 14, 2018, the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act. Among the many alterations to existing law authorized by this latest foray into banking regulation, the bill effectuates three changes to the legal regime governing student financial aid. 

First, lenders would no longer be able to declare that a student loan is in default when a co-signer dies or declares bankruptcy, effectively endorsing a policy followed by a handful of lenders. In a telling historical parallel, similar auto defaults have left borrowers with no choice but to repay the full balance or risk ruining their credit. Although this provision releases the cosigner, it does not force private lenders to forgive the loan of the deceased and allows them to recoup any balance from a deceased’s estate. In addition, it applies only to new private loan borrowers and does not cover students whose spouses cosigned their loans. 

Second, a consumer would be entitled to request that a financial institution remove a reported default regarding a private education loan from his or her credit record as long as: (1) the financial institution chooses to offer a loan rehabilitation program which includes, without limitation, a requirement of the consumer to make consecutive on-time monthly payments in a number that demonstrates, in the assessment of the financial institution offering the loan rehabilitation program, a renewed ability and willingness to repay the loan; and (2) the requirements of the particular loan rehabilitation program have been successfully met. Departing from some other proposals, the bill does not compel financial institutions to establish any such rehabilitation program or require credit agencies to honor a borrower’s plea. Further limiting its likely utility, a consumer may invoke this option only once per loan. 

Third, in an amendment of the Financial Literacy and Education Improvement Act, the United States Securities and Exchange Commission must establish best practices for institutions of higher education regarding methods to “teach financial literacy skills” and “provide useful and necessary information to assist students at institutions of higher education when making financial decisions related to student borrowing.” These practices, to be set only after consultation with interested institutions and solicitation of public comments, must include the following: (1) “[m]ethods to ensure that each student has a clear sense of the student’s total borrowing obligations, including monthly payments, and repayment options”; (2) “[t]he most effective ways to engage students in financial literacy education, including frequency and timing of communication with students”; (3) “[i]nformation on how to target different student populations, including part-time students, first-time students, and other nontraditional students”; and (4) “[w]ays to clearly communicate the importance of graduating on a student’s ability to repay student loans.” Even after formalizing these practices, the Commission must “maintain and periodically update th[is] . . . information.” Once again, the bill leaves covered entities free to adopt the SEC’s prospective best practices—or ignore them.  

The bill now heads to the House of Representatives for either approval or reconciliation before heading to the President’s desk for his signature. Rep. Thomas Jeb Hensarling, Chairman of the House Financial Services Committee, has voiced some objections to the Senate’s overhaul. Indeed, Hensarling’s committee has already circulated a list of 29 bills with bipartisan support that he wants considered in a compromise package.  

A copy of the bill as passed can be found here.

 

We are proud to announce that Troutman Sanders partner David Anthony will be a featured speaker at the Practising Law Institute’s 23rd Annual Consumer Financial Services Institute at the Practising Law Institute (PLI) Center in New York City on March 26-27, 2018.

In its 23rd year, topics will focus on a broad array of recent regulatory, enforcement and litigation issues relating to mortgages; auto finance; credit, debit and prepaid cards; marketplace lending and Fintech; deposit accounts; student loans; and other products and services. We will also focus on new developments pertaining to fair lending, and the TCPA, FDCPA, FCRA, Military Lending Act and SCRA. Join us and our esteemed faculty for an insightful review of this dynamic area of legal practice.

David will speak on a panel entitled “Fair Credit Reporting Act & Debt Collection Issues” on Monday, March 26 from 4:00 – 5:00 p.m. The panel will discuss reporting on authorized user accounts, and what it means for defining “accuracy,” viability of standalone disclosure claims, dangers of class trials on statutory damages claims, impact of the Equifax data security breach on FCRA litigation, and increasing public and private litigation directed at debt collection mills.

For more information regarding this conference or to register, please click here.

On March 9, PNC Financial Services Group, Inc. moved to dismiss a class action complaint filed by Damian McCoy in the Western District of Pennsylvania.  McCoy sued PNC after his conditional employment offer was revoked when a 2011 arrest was discovered during his criminal background check.  Allegedly, the report indicated that the felony and misdemeanor charges against McCoy had been withdrawn.  McCoy claims that the revocation of his employment offer violates Pennsylvania’s Criminal History Record Information Act (“CHRIA”).  The state law prohibits employers from considering criminal history record information that does not rise to the level of conviction.

PNC moved to dismiss the case, arguing that federal banking law, specifically the Federal Deposit Insurance Act (“FDIA”), preempts the state statute.  PNC argued that federal law imposes different and conflicting requirements on federally-insured banks like PNC and that “invoking CHRIA to hold PNC liable for considering criminal record information that does not amount to a conviction would frustrate the FDIA’s objective – to ensure that a federally-insured bank does not employ an individual who has entered into a pretrial diversion program for prosecutions involving dishonesty or a breach of trust or money laundering.”  PNC also argued it was impossible for a federally-insured bank to comply with both CHRIA and the FDIA.  As a result of the conflict between the state and federal laws, PNC argued that federal preemption under the Supremacy Clause of the Constitution mandates that the state law is invalidated under the principle of “conflict preemption.”

The case is McCoy v. PNC Financial Services Group, Inc., Case No. 2:18-cv-00299-CRE (W.D. Pa.).  Troutman Sanders LLP will continue to monitor developments in this case with respect to the preemption arguments advanced by PNC.