Is This Really Fair (Credit Reporting Act)?


    On June 12, 2012, the Federal Trade Commission announced that Spokeo, Inc. had agreed to settle charges that it compiled and sold detailed personal profiles of individuals to various employers, recruiters and other background screening groups without observing procedures required under the Fair Credit Reporting Act (FCRA). This settlement, which required the company to pay an $800,000 civil penalty, highlights the far-reaching implications of the FCRA in the employment context, which may come as an unpleasant surprise to some employers.

    While the settlement may help to clarify the FCRA compliance responsibilities for data brokers, it also has potentially significant consequences for employers and others who utilize the services of these companies for employment purposes. When an employer relies on a third-party service to generate information regarding a candidate for employment, as well as a current employee, the employer must comply with the FCRA, even if the third-party is simply an efficient conduit for obtaining information that is otherwise publicly-available on the Internet. Just as it places certain regulatory requirements on consumer reporting agencies, the FCRA also imposes various obligations on the end users of consumer reports, such as employers, that include disclosure, consent and pre- and post-adverse action notice requirements.

    According to its website, Spokeo is a “people search engine that organizes vast quantities of white-pages listings, social information, and other people-related data from a large variety of public sources." The Department of Justice (DOJ), acting on behalf of the FTC, alleged in a federal lawsuit that Spokeo collected information about individuals from various online and offline sources, including social networks. The collected data reportedly included individuals’ name, addresses, phone numbers, marital status, age range and email address, and even may have included hobbies, ethnicity, religion, participation on social networking web sites and photos. After compiling this information, Spokeo allegedly merged it to create personal profiles of the individuals.

    According to the lawsuit filed by the DOJ, from 2008 to 2010, Spokeo marketed these profiles – even adding a subscription option – to human resources professionals, job recruiters and others as an employment screening tool, to be used to help determine whether to interview or hire a particular job candidate. Spokeo ran online advertisements directed toward employers and even had a portion of its web site devoted to recruiters.

    In its complaint, the DOJ contended that the personal profiles that Spokeo creates are “consumer reports” under the FCRA and, because Spokeo marketed and sold these reports to others, it was a “consumer reporting agency” under the statute. The DOJ alleged that Spokeo’s conduct fell within the FCRA because, in the FCRA vernacular, the information that the company collected related to the individuals’ character, general reputation, personal characteristics and/or mode of living, and because they were used, or expected to be used, as a factor for determining employment eligibility.

    Since it was a “consumer reporting agency,” Spokeo was obliged, according to the federal court complaint, to comply with the FCRA before furnishing a personal profile to a user (for example, an employer or recruiter. Among the obligations the FCRA places on consumer reporting agencies is that they require prospective users of the reports to certify the purpose for which the information was sought and further certify that the information will not be used for any other purpose.

    While Spokeo did not admit liability, it ultimately entered into a consent decree with the DOJ to resolve the charges and agreed to implement various policies and procedures designed to ensure compliance with the FCRA, including submitting compliance reports to the FTC and creating and retaining certain records. Some of these compliance obligations are to last for 20 years.

    If you would like further information, please contact the Edwards Wildman lawyer responsible for your matters or one of the authors linked above.

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