Introduction
On October 24, 2024 [1] [3] [4] [5], the Consumer Financial Protection Bureau (CFPB) issued a circular clarifying the applicability of the Fair Credit Reporting Act (FCRA) to entities involved in workplace tracking [3] [5], especially with the growing use of artificial intelligence (AI) by employers [4]. This circular highlights the need for compliance as AI and advanced data analysis become more prevalent in employment practices.
Description
On October 24, 2024 [1] [3] [4] [5], the federal Consumer Financial Protection Bureau (CFPB) issued a circular clarifying that the Fair Credit Reporting Act (FCRA) applies to entities involved in workplace tracking [3] [5], particularly in the context of the increasing use of artificial intelligence (AI) by employers to evaluate applicants and employees [4]. The circular emphasizes that the FCRA’s applicability extends beyond traditional consumer reports, including criminal history and credit reports [1] [4], necessitating compliance as AI and advanced data analysis become more prevalent in employment practices [4].
The CFPB highlighted that vendors are providing a variety of products that track employee activities [1] [4], personal habits [1] [4], and even biometric information [1] [4], which some employers utilize for productivity monitoring and performance evaluation [1] [4]. An example cited involves applications that assess transportation workers’ driving activities and generate scores for employment considerations [4]. The circular clarifies that certain vendors may qualify as consumer reporting agencies under the FCRA [1] [4], meaning their offerings could be classified as “consumer reports.” This classification imposes obligations regarding accuracy [1] [4], notice [1] [2] [3] [4] [6], and transparency [1] [4].
Employers utilizing third-party monitoring tools for employment purposes must disclose their intent and obtain written authorization from consumers before requesting reports [3]. They are also required to provide individuals with notice and a copy of the consumer report prior to any adverse employment actions. If adverse actions are based on the reports [3], employers must follow specific disclosure and notice requirements [6], including sending a pre-adverse action notice to inform consumers that a report may affect their employment eligibility [3]. This notice allows a minimum of five business days for the consumer to respond before finalizing any adverse decisions [3]. If an adverse action is still intended after this period [3], a final notice must be sent [3], detailing the consumer’s rights under the FCRA [3], including the right to dispute the report’s accuracy [3].
The circular emphasizes that any information impacting hiring or retention decisions qualifies as an “employment purpose,” even if it plays a minor role in the overall assessment [3]. The CFPB and FTC have historically applied a broad definition of “employment purposes,” which includes independent contractors and volunteers [3], indicating that tracking technology used on non-employees may also trigger FCRA compliance [3]. Additionally, companies assisting employers in making employment decisions may fall under the definition of consumer reporting agencies [1] [4] [6], particularly if they provide data about applicants sourced from previous employers [1] [4] [6]. The CFPB notes that technological advancements may lead to new entities being classified as consumer reporting agencies [2], such as app developers that compile and evaluate consumer data for employment purposes [2].
By broadening the definition of “consumer reporting agency,” the CFPB aims to reshape the regulatory landscape for employers focused on traditional consumer reports [3]. However, the lack of FTC support and the circular’s non-binding nature create uncertainty regarding its enforcement [3]. Employers and technology providers should remain vigilant about potential FCRA implications and the evolving views of CFPB and FTC leadership [3]. Noncompliance with the circular could expose employers and technology companies to private litigation [3], with statutory damages for willful FCRA violations ranging from $100 to $1,000 per violation [3], along with punitive damages and attorney’s fees [3].
The rise of AI and machine learning in the workplace has led to increased regulatory scrutiny and legislative activity at both federal and state levels [3], including significant developments such as New York City’s Automated Employment Decision Tools law [2], which imposes specific requirements on employers using AI in hiring processes [2]. Employers must assess their AI usage to ensure compliance with existing laws and should consult with labor and employment attorneys for guidance on the FCRA and the CFPB’s directives. The CFPB also plans to propose significant revisions to its FCRA rules [2], expected to be announced soon [2].
Conclusion
The CFPB’s circular underscores the expanding scope of the FCRA in the context of AI and workplace tracking technologies. Employers and technology providers must be proactive in understanding and adhering to these regulations to avoid potential legal repercussions. As AI continues to influence employment practices, staying informed about regulatory changes and seeking legal guidance will be crucial for compliance and risk management.
References
[1] https://www.lexology.com/library/detail.aspx?g=05d1ca32-c641-466f-afa4-f6a99a3709e9
[2] https://www.mofo.com/resources/insights/241119-a-mofo-privacy-minute-q-a-cfpb-issues-guidance
[3] https://www.jdsupra.com/legalnews/cfpb-warns-of-fcra-implications-8681527/
[4] https://www.huntonak.com/hunton-employment-labor-perspectives/employee-monitoring-increased-use-draws-increased-scrutiny-from-consumer-financial-protection-bureau
[5] https://www.jdsupra.com/topics/fcra/
[6] https://natlawreview.com/article/employee-monitoring-increased-use-draws-increased-scrutiny-consumer-financial
