By Pamela Q. Devata, Esther Slater McDonald, John Drury, and Connor M. Bateman

Seyfarth Synopsis: As part of an evolving trend of narrowly interpreting the FCRA’s “standalone” disclosure and “clear and conspicuous” disclosure requirements, the Ninth Circuit has held that users of consumer reports may violate the FCRA and ICRAA by including “extraneous” state law notices and potentially “confusing” language in background disclosure forms.

Both the Fair Credit Reporting Act (FCRA) and California’s Investigative Consumer Reporting Agencies Act (ICRAA) regulate background screening and the process employers must follow when procuring background reports on applicants. Under both statutes, before procuring a consumer report (i.e., a criminal or other background report) on an applicant, employers and other users of consumer reports must provide the applicant a “clear and conspicuous disclosure” that “a consumer report may be obtained for employment purposes” and further require that the disclosure must be “in a document that consists solely of the disclosure.”

Yesterday, the Ninth Circuit Court of Appeals held that this statutory language, whether derived from the FCRA or ICRAA, prohibits employers from including any superfluous information in the disclosure document. Thus, at least within the Ninth Circuit, employers cannot include disclosures required by other state laws in the same document that contains the disclosure required by the FCRA. The court also indicated that any language in the disclosure document that could confuse a reasonable person about his or her rights under the FCRA or ICRAA likely will violate the laws’ “clear and conspicuous” requirement.

Discussion of the Facts & Opinion

The case, Gilberg v. California Check Cashing Stores LLC, involves a putative class action filed by Desiree Gilberg, a former employee of CheckSmart Financial, LLC. Before starting work, Gilberg signed a form entitled “Disclosure Regarding Background Investigation,” which stated that CheckSmart may obtain the applicant’s background report, and that the applicant had the right to request a copy of his or her report. The form also included information regarding the applicant’s right to obtain a copy of the report under various state laws. Gilberg alleged that this disclosure violated the FCRA and ICRAA. The Ninth Circuit agreed and reversed the district court’s grant of summary judgment to CheckSmart.

First, the court held that by including other state-mandated disclosure information, CheckSmart’s disclosure form violated the FCRA’s standalone document requirement. Citing its earlier decision in Syed v. M-I, LLC, 853 F.3d 492 (9th Cir. 2017), the court reiterated that “the statute [means] what it [says]: the required disclosure must be in a document that consists ‘solely’ of the disclosure.” Id. at 496 (internal alterations omitted). Although Syed involved an employer who included a liability waiver in the same document as the disclosure, the court held that the FCRA’s use of the word “solely” prohibits “any surplusage” in the disclosure document, including any state-mandated disclosure information. The court rejected CheckSmart’s argument that the inclusion of such additional information furthers the FCRA’s disclosure purposes, noting that CheckSmart’s form included information on state laws that were inapplicable to Gilberg and referenced documents that were not part of the FCRA-mandated disclosure. The court held that such “extraneous information is as likely to confuse as it is inform . . . [and] does not further FCRA’s purpose.” In any event, the court held that the statute’s purported purpose could not overcome its plain language.

Second, the court held that the disclosure, though “conspicuous,” was not “clear.” Analyzing the clarity requirement, the court explained that a reasonable person would not understand the following language in the disclosure:

The scope of this notice and authorization is all-encompassing; however, allowing CheckSmart Financial, LLC to obtain from any outside organization all manner of consumer reports and investigative consumer reports now and, if you are hired, throughout the course of your employment to the extent permitted by law.

The court took particular issue with the use of the term “all-encompassing,” noting that CheckSmart failed to explain the meaning of that language or how it could impact an applicant’s rights. The court further noted that the second half of the sentence, after the semicolon, lacked a subject and was incomplete. Although it appears that CheckSmart intended to use a comma instead of a semicolon, the court held that the sentence, as drafted, “suggests that there may be some limits on the all-encompassing nature of the authorization, but it does not identify what those limits might be.”

The court further noted that the following language would likely confuse a reasonable reader:

New York and Maine applicants or employees only: You have the right to inspect and receive a copy of any investigative consumer report requested by CheckSmart Financial, LLC by contacting the consumer reporting agency identified above directly.

In the court’s view, this language could be construed to mean that only New York and Maine applicants have the right to inspect and receive a copy of the report rather than to mean that only New York and Maine require consumers to be notified of their rights at this stage of the application process.

The court’s reasoning appears inconsistent with the statutory text. The FCRA and ICRAA require that the disclosure that a background check will be obtained to be “clear and conspicuous,” and the first two sentences of the CheckSmart disclosure plainly disclose that a report may be obtained for employment purposes:

CheckSmart Financial, LLC may obtain information about you from a consumer reporting agency for employment purposes. Thus, you may be the subject of a ‘consumer report’ and/or an ‘investigative consumer report’ ….

Rather than considering the disclosure form as a whole, the court focused on discrete sentences without considering them in the context of the entire form. The court also did not explain how a state-law notice that a consumer has a right to obtain a copy of the report made it unclear that a report would be obtained.

Interestingly, it appears that neither the Court nor the parties addressed whether the plaintiff even had standing to sue. Unlike in Syed, Gilberg did not allege that the disclosure confused her or that she did not understand that she would be subject to a background report. Thus, the more appropriate route for the Ninth Circuit would have been to dismiss the claim under Syed, which held that a consumer has standing to sue if she was confused or did not understand that she was authorizing a background check. Instead, the court took the opportunity to hold that the disclosure form could have confused a consumer even though no one, not even the plaintiff, had made such an allegation.

Employer Outlook

This case serves as yet another reminder to employers to carefully review their background check disclosure and authorization forms and processes. Both the FCRA- and ICRAA-mandated disclosures should be set out in separate, standalone documents, entirely distinct from any other application paperwork, including even applicable disclosures mandated by other state laws. Further, although courts apply a “reasonable person” standard to assess a disclosure’s clarity, Gilberg may portend a movement toward an even more exacting standard. In light of this evolving trend, employers should make sure to use language that is impeccably clear, concise, and free from any typographical errors or wording that could confuse the least sophisticated consumer about his or her rights under the FCRA or any comparable state laws.

Pamela Q. Devata is a partner in Seyfarth’s Chicago office, John Drury is Senior Counsel in the firm’s Chicago office, Esther Slater McDonald is a partner in the Firm’s Atlanta office, and Connor M. Bateman is an Associate in the firm’s Atlanta office. If you would like further information about Fair Credit Reporting Act disclosure and authorization forms or best practices for compliance with the FCRA, please contact your Seyfarth attorney, or Pamela Devata at pdevata@seyfarth.com, Esther McDonald at emcdonald@seyfarth.com, John Drury at jdrury@seyfarth.com, or Connor Bateman at cbateman@seyfarth.com.

By Esther Slater McDonald

Seyfarth Synopsis: In Spokeo, Inc. v. Robins, the U.S. Supreme Court held that a plaintiff must have a concrete injury to sue for FCRA violations. Following Spokeo’s remand, courts have held that consumers have standing to sue if their reports are inaccurate even if an inaccuracy did not adversely affect them.

In Spokeo, the U.S. Supreme Court reaffirmed that plaintiffs seeking to sue in federal court must have a concrete, actual injury; a mere statutory violation is not enough. The U.S. Supreme Court remanded the case for the Ninth Circuit to determine whether the plaintiff had alleged a concrete injury. (See our prior posts hereherehere, and here for a summary of the case background and a more detailed explanation of the U.S. Supreme Court’s ruling.)

The Ninth Circuit’s Ruling on Remand

On remand, in Spokeo, Inc. v. Robins, the Ninth Circuit concluded that the plaintiff had sufficiently pled a concrete injury in fact and thus had standing to proceed with his FCRA claims. The court stated that, although a plaintiff may not show an injury-in-fact merely by pointing to a statutory violation, “some statutory violations, alone, do establish concrete harm.” To determine whether a statutory violation is itself a concrete injury, the court created a two-part test that asks (1) whether the statutory provision at issue was established to protect the consumer’s concrete interests (as opposed to purely procedural rights), and, if yes, (2) whether the specific procedural violation alleged actually harmed or presented a material risk of harm to those interests.

On the first question, the Ninth Circuit noted that the plaintiff had alleged a violation of the FCRA’s requirement that a consumer reporting agency have reasonable procedures in place to ensure the maximum possible accuracy in reporting. The court concluded that this provision “protect[s] consumers’ concrete interests” in accurate reporting and consumer privacy and that these interests are “‘real’ rather than purely legal creations.” The court reasoned that “given the ubiquity and importance of consumer reports in modern life—in employment decisions, in loan applications, in home purchases, and much more—the real-world implications of material inaccuracies in those reports seem patent on their face.” The court also noted that “the interests that FCRA protects also resemble other reputational and privacy interests that have long been protected in the law.”

As to the second question, the Ninth Circuit stated that it required an “examination of the nature of the specific alleged reporting inaccuracies to ensure that they raise a real risk of harm to the concrete interests that the FCRA protects.” The court concluded that, while a benign inaccuracy may not be harmful, the plaintiff had raised a real risk of harm by alleging that the defendant had inaccurately reported that he was married, had children, was in his 50’s, was employed, had a graduate degree, and was financially stable. The court reasoned that this information “is the type that may be important to employers or others making use of a consumer report.”

The Ninth Circuit held that whether an employer or other end user considered the inaccurate information was irrelevant. Although the defendant argued that the plaintiff must show that the information actually harmed his employment prospects or presented a material or impending risk of doing so, the court disagreed. In the court’s view, “[t]he threat to a consumer’s livelihood is caused by the very existence of inaccurate information in his credit report and the likelihood that such information will be important to one of the many entities who make use of such reports.” Thus, a materially inaccurate report is itself a concrete injury.

Although the Ninth Circuit spoke of harm and materiality, the crux of the opinion appears to be that any inaccuracy will provide standing if it involves information that a user of a report may consider even if no one ever does consider it. And that is how one court recently interpreted the ruling.

In Alame v. Mergers Marketinga judge in the Western District of Missouri held that a plaintiff had standing to sue because he alleged that the defendant’s reporting made it appear that he moved around a lot. The plaintiff’s background report included 22 address entries for him. Some of the address entries were for the same location but varied as to the formatting of the address. The plaintiff claimed that reporting formatting variations inaccurately conveyed that he had lived at 22 different locations. The plaintiff did not allege that anyone had interpreted the report that way or that he had not lived at those locations. Nonetheless, quoting Robins, the court held that a plaintiff is injured by “‘the very existence of inaccurate information in his credit report.’”

Potential Conflict with Spokeo and Dreher

The Ninth Circuit’s opinion is difficult to reconcile with Spokeo. In Spokeo, the U.S. Supreme Court held that, to be sufficient, an injury must “actually exist” and clarified that “not all inaccuracies cause harm or present any material risk of harm” to a plaintiff. Yet, the Ninth Circuit held that an inaccurate report is itself a concrete injury even if the only people who received the report were the plaintiff and his lawyer. (The plaintiff did not allege that the defendant had furnished his report to anyone other than the plaintiff and his lawyer.)

The Ninth Circuit’s position also seems to conflict with the Fourth Circuit’s ruling in Dreher v. Experian Information SolutionsIn that case, the plaintiff sued a consumer reporting agency for inaccurately identifying the source of credit information in his report. The Fourth Circuit rejected the plaintiff’s argument that the inaccuracy itself was an injury. Instead, the court held that a plaintiff must show that he “was adversely affected by the alleged error on his report.” The court reasoned that an inaccuracy “work[s] no real world harm” unless it has a negative impact on the consumer.

Implications for Businesses

Robins and Dreher indicate that the federal courts are still grappling with Spokeo’s meaning. We expect the issue will continue to percolate in the federal courts. If the divide on Spokeo’s application deepens among the federal courts of appeal, the U.S. Supreme Court may revisit the standing issue to provide more clarity.

For now, under Robins, consumers may be able to bring FCRA claims in federal court whenever their reports contain inaccurate information unless that information is truly benign, such as when an address contains a mistyped zip code. Even if a plaintiff lacks Article III standing under Dreher, he or she may be able to proceed in state court in jurisdictions that recognize broad standing to sue for any statutory violation.

For this reason, employers obtaining background checks should be careful to comply with each of the FCRA’s highly technical requirements. Failing to comply with a requirement could expose a company to class action liability even if the violation did not impact hiring. Employers should consider conducting a privileged compliance review of their background screening process, including the notices used and the procedures followed for obtaining and using background reports. Employers should also review their policies regarding requesting and using salary history and criminal history in light of the increasing number of jurisdictions that restrict use of such information and the Equal Employment Opportunity Commission’s continued interest in background screening policies that may have a disparate impact on minorities.

If you have questions about these or other issues, please reach out to the author or your Seyfarth attorney.