You have run a credit check on an applicant or employee, and the report came back with negative information. Because of the information included in the credit report you have decided that you do not want to move ahead with the applicant, or in the case of the employee, keep them on staff. So, can you just rescind the offer to the applicant or let the employee go? The answer is no.

You must follow the 2-step Pre-Adverse/Adverse action process. The subject of any employment related background check must be given the opportunity to dispute the information contained in the report. In general, the applicant must be given a minimum of five business days to start the dispute process.

In all disputes, in addition to the steps an employer must follow, there are also steps that the subject must follow. Credit check disputes are no exception.

We live in a litigious society, and far too often people run to the courts without doing all they can to resolve an issue. This was true of an appeal in a class action lawsuit just decided this month in the Seventh Circuit Court.

Two subjects of credit checks had borrowed money from lenders whose interest rates were more than 300% of the loan amount. Both plaintiffs stopped paying their loans, and the lenders reported negative information to TransUnion.

If subjects of credit reports feel that there is incorrect or false information on their report, their first course of action is typically to dispute the information with the reporting credit agency. In this case, one subject did, the second did not.

Since the first subject filed a dispute with TransUnion, TransUnion investigated the information further. The information was found to be accurate as provided by the lender, so it remained on the report. The second subject never filed a dispute with TransUnion.

The plaintiffs filed the lawsuit claiming that TransUnion violated the FCRA provision “to assure maximum possible accuracy of the information” {15 U.S.C. § 1681e(b)}, and the provision that requires the reporting agency to reinvestigate the disputed information {15 U.S.C § 1681i(a)}.

For the accuracy claim, the plaintiffs did not dispute the factual accuracy of the information, they disputed the legal accuracy. They felt that because the terms of the loans were “legally invalid debts,” that the information should not have been reported. As for the reinvestigation claim, they argued that TransUnion “failed to use reasonable reinvestigation practices for ascertaining the accuracy of information.”

TransUnion argued that the duty imposed on them is to report factually accurate information, and that they are not required to determine if disputed debts are accurate. The court agreed with TransUnion. Only a court can decide on the legality of debts, and credit reporting agencies are not obligated, nor are the qualified, to make legal decisions regarding debts.

In most cases, if the credit reporting agency reinvestigates and finds the information to be accurate, the subject should then work with the lender to address the information in question. In this case, however, the plaintiffs were arguing the legality of the debts, so they should have taken the lenders to court instead of filing a lawsuit against the credit reporting agency.

Sources: PBSA Thursday Letter [email protected]; https://files.constantcontact.com/0401b957001/beed483b-df1f-4001-8435-f190c3945f8e.pdf