FTC Requires Two Background Report Providers to Pay $5.8 Million for Alleged FCRA Violations


FTC Requires Two Background Report Providers to Pay $5.8 Million for Alleged FCRA Violations

On September 11, 2023, the Federal Trade Commission (FTC) announced that is requiring two “background report providers” to pay $5.8 million to settle charges that they allegedly violated the Fair Credit Reporting Act (FCRA) by, among other things, failing to ensure the maximum possible accuracy of their consumer reports, according to a press release from the FTC.

In the complaint, the FTC claimed two California-based companies that were marketed as “people-search services” and allowed users to search unlimited background reports on individuals for a monthly subscription fee were actually operating as consumer reporting agencies (CRAs) that must follow the accuracy and permissible purpose requirements of the FCRA.

Under the proposed order from the FTC filed in the United States District Court Southern District of California – which must be approved by a federal judge before it can go into effect – the two “background report providers” and their affiliated companies will be required to pay a $5.8 million penalty. Other provisions of the proposed order from the FTC would:

  • Require the companies to establish and implement a comprehensive monitoring program to regularly review, assess, and determine the extent to which each of the companies are operating in whole or in part as a CRA and to ensure that they are complying with the requirements of the FCRA;
  • Permanently prohibit them from failing to comply with the FCRA when they are operating as CRAs;
  • Permanently prohibit them from misrepresenting the accuracy of their reports or making similar misrepresentations as outlined in the complaint; and
  • Require them to mandate that endorsers disclose any material connections and to monitor any endorsers who have a material connection to the company to ensure they are disclosing such connections.

The FCRA requires CRAs to “follow reasonable procedures to assure maximum possible accuracy.” In addition to failing to ensure accuracy, the FTC said the companies violated the FCRA by providing background reports to people who did not have a permissible purpose to obtain them and failing to investigate and respond to consumer complaints about inaccuracies.

“Companies that compile personal information and sell background reports are on notice,” Samuel Levine, Director of the Bureau of Consumer Protection, stated in the FTC press release. “And, if you market your reports to be used to screen tenants or employees, you are a consumer reporting agency and you must follow the requirements of the FCRA.”

In 2014, one of the two “background report providers” agreed to settle FTC charges that the company previously violated the FCRA by failing to take reasonable steps to make sure that its background reports were accurate and that its users had a permissible reason to have them. The court order imposed a fine of $525,000 against the company in that case.

ClearStar is a leading CRA and a global Human Resources technology company that specializes in background checks, drug testing, and occupational health screening. ClearStar offers workforce screening solutions that fully comply with the requirements of the FCRA along with other federal, state, and local laws. To learn more about ClearStar, contact us today.

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    Thomas Ahearn - Digital Content Editor

    Thomas Ahearn is a Digital Content Editor at ClearStar, a leading Human Resources technology company specializing in background checks, drug testing, and occupational health screening. He writes about a variety of topics in the background screening industry including Artificial Intelligence (AI), "Ban the Box," class action lawsuits, credit reports, criminal records, drug testing, Equal Employment Opportunity Commission (EEOC), Fair Credit Reporting Act (FCRA), identity theft, privacy, social media screening, and workplace violence.

    At ClearStar, we are committed to your success. An important part of your employment screening program involves compliance with various laws and regulations, which is why we are providing information regarding screening requirements in certain countries, region, etc. While we are happy to provide you with this information, it is your responsibility to comply with applicable laws and to understand how such information pertains to your employment screening program. The foregoing information is not offered as legal advice but is instead offered for informational purposes. ClearStar is not a law firm and does not offer legal advice and this communication does not form an attorney client relationship. The foregoing information is therefore not intended as a substitute for the legal advice of a lawyer knowledgeable of the user’s individual circumstances or to provide legal advice. ClearStar makes no assurances regarding the accuracy, completeness, or utility of the information contained in this publication. Legislative, regulatory and case law developments regularly impact on general research and this area is evolving rapidly. ClearStar expressly disclaim any warranties or responsibility or damages associated with or arising out of the information provided herein.


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