UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Division of Credit Practices
Thomas E. Kane
October 27, 1998
Harris K. Solomon, Esq.
Brinkley, McNerney, Morgan, Solomon & Tatum, LLP
New River Center, Suite 1800
200 East Las Olas Boulevard
Fort Lauderdale, Florida 33301-2209
Re: Sections 603(h)
and 604(b)(3) of the Fair Credit Reporting Act
Dear Mr. Solomon:
This responds to your request for a staff opinion regarding the
Fair Credit Reporting Act ("FCRA"). You state that your
client, a title insurance company, frequently enters into contracts
with individuals to sell its insurance, examine title, and close
real property transactions. According to your letter, the individuals
work out of offices owned or leased by them or their employer.
Your client does not consider the individuals to be its employees.
In an attempt to reduce embezzlement, your client plans to request
that the individuals described above who handle funds from loan
transactions involving your client agree in writing to permit
your client to obtain investigative consumer reports or other
types of consumer reports on them. You ask whether these individuals
would be considered employees under the Fair Credit Reporting
Act and note that, if your client does obtain these consumer reports
for "employment purposes," it would have to comply with
Section 604(b)(3) before taking any adverse actions against the
individuals.(1) Section 603(h)
states that "the term 'employment purposes' when used in
connection with a consumer report means a report used for the
purpose of evaluating a consumer for employment, promotion, reassignment
or retention as an employee."
As we stated in the enclosed letter (Allison,
2/23/98), Commission staff subscribes to the view that the term
"employment purposes," as used in the FCRA, should be
interpreted broadly. This view is consistent with the Federal
Trade Commission's position in Comment 603(h)-2 of its Commentary
on the Fair Credit Reporting Act,(2)
which states that "[a] report in connection with security
clearances of a government contractor's employees would be for
'employment purposes' under this section." That comment codified
a 1986 Commission staff opinion letter, concerning consumer reports
that the Defense Intelligence Agency ("DIA") was obtaining
on employees of DIA's defense contractors to determine whether
the employees were eligible for security clearances, which concluded
that DIA was obtaining the consumer reports for "employment
Staff believes that your client's relationship with the individuals
who sell title insurance, examine titles, and close real property
transactions would be similar to the relationship between DIA
and the contractor's employees referred to in Comment 603(h)-2
and the underlying opinion letter. Like DIA, your client would
be obtaining reports on individuals who are not its employees
but will be performing work for your client. Also like DIA, your
client would be obtaining the reports to determine whether the
individual subjects of the reports are trustworthy. Thus, if your
client obtained consumer reports on these persons, it would be
obtaining them for "employment purposes" and would have
to comply with Section 604(b)(3).(4)
The views set forth in this informal staff opinion are those
of the staff and are not binding on the Commission.
Thomas E. Kane
1. Section 604(b)(3) provides:
In using a consumer report for employment purposes,
before taking any adverse action based in whole or in part on
the report, the person intending to take such adverse action
shall provide to the consumer to whom the report relates (A)
a copy of the report; and (B) a description in writing of the
rights of the consumer under this title, as prescribed by the
Federal Trade Commission under section 609(c)(3).
Section 615 imposes additional duties after a person has
taken adverse action based on a consumer report for any reason.
2. 16 C.F.R. § 600 Appendix, 55
Fed. Reg. 18,804, 18,813 (May 4, 1990).
3. Ralph C. Clontz, Jr., Fair Credit
Reporting Manual (rev. ed. & Supp. 1988), Letter No.
379 (copy enclosed).
4. Your client would also have to comply
with Sections 604(b)(1)(A), 604(b)(2), and other sections that
specifically refer to consumer reports obtained for "employment