There is some good news for employers regarding credit checks. In a recent lawsuit, TransUnion LLC v. Ramirez (No. 20-297), the Supreme Court reversed a $40 million class action judgement that was awarded to the class members at the circuit court level. The jury of the circuit court trial awarded $1,000 in statutory damages and another $6,300 in punitive damages to each class member. The punitive damages were reduced by half in the Ninth Circuit Court of Appeals before the case proceeded to the Supreme Court.
When most people think of the Fair Credit Reporting Act (FCRA), their initial thought is that it only covers credit reports. That is not correct. All parts of background checks are governed by the FCRA, including the authorization and disclosure forms.
In the Ramirez case, Sergio Ramirez was denied financing from a car dealership because his credit report contained an alert, which was in error, that his name was a potential match to one on the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) list, which is a list of criminals including, but not limited to, terrorists, and drug traffickers. This showed on his credit report because TransUnion offered the OFAC Name Screen Alert as an add-on service to their credit check reports. This alert was based on a match of solely the first and last names; no other information was compared.
The class action had a total of 8,185 people, including Mr. Ramirez, whose credit files contained this alert. The suit claimed that TransUnion failed to follow reasonable procedures to ensure accuracy as required by the FCRA. Of that number, 1,853 had reports (including the OFAC alert) provided to third parties. The reports of the rest of the class members were not provided to third parties during the designated time frame of the class action suit. The future risk for these members was found not to be concrete harm.
The other claim from the class members was that there were “formatting defects” in some mailings they received from TransUnion; however, they did not show that the mailings caused them harm in any way.
So why is this good news for employers? It is good news because the Supreme court based its decision on the concrete harm, not just on procedural error. The number of lawsuits regarding background checks grows every year, and one of the main areas for litigation is with the authorization and disclosure forms. This decision from the Supreme Court will make it easier for employers to defend themselves when a complaint is filed because the plaintiff(s) will have to show actual harm, not just a formatting issue.
This does not mean that employers should become lax in their processes. This was a split decision, 5-4, which can be a little too close for comfort. While the Ramirez case will no doubt play a role in future cases, no employer wants to be the test case in a situation like this, especially if they have been negligent in their practices.