FCRA

Philadelphia City Council Amends and Expands Fair Criminal Record Screening Standards Law (commonly referred to as the “Fair Chance Law” or “Ban-the-Box”).

What is this about?

On September 25, 2025, the Philadelphia City Council passed a bill amending and expanding the existing Philadelphia Fair Chance Law. This legislation introduces several changes to enhance protections for job applicants and employees with criminal records. It becomes effective on January 6, 2026, and applies to employers in Philadelphia.


Key Changes:

Shortened Lookback Period for Misdemeanors

Under the existing Fair Chance Law, employers are prohibited from considering conviction information that is older than seven years from the date of the inquiry. The new amendments reduce the lookback period for misdemeanors to four years. The lookback period for felony convictions remains subject to the
seven-year window.

Summary Offenses Excluded From Employment Decisions:

The amendments reconcile the limitations under the Fair Chance Law with those imposed by the Pennsylvania Criminal Records Information Act (CHRIA) by confirming that employers may not consider summary offenses—offenses that do not rise to the level of a felony or misdemeanor—in making
employment decisions.

Added Protections for Expunged or Sealed Records:

Employers may not consider expunged or sealed criminal records. Furthermore, if such records appear in a background check or in PennDOT driver history reports, employers must allow applicants to provide proof of sealing or expungement before making a final decision.

Notice of Background Checks:

Employers who choose to provide notice of their intention to perform a
background check during the hiring process, such as in a job advertisement or in a job offer, must now also state that any consideration of the background check will be an individualized assessment based on the applicant’s or employee’s specific record and the requirements and duties of the particular
job.

Notice and Rebuttal Opportunities
Employers will have additional pre-adverse action requirements, which include
providing applicants or employees with:

  1. A summary of the applicant’s or employee’s rights under the Fair Chance Law.
  2. A statement that the employer will consider evidence of any error in the criminal history records, evidence of rehabilitation, or other mitigation if provided by the applicant or employee. A list of the types of evidence that may be offered includes:
      • the completion of a mental health or substance use
        disorder treatment program
      • the completion of a job training program
      • the completion of a GED or post-secondary education
        program
      • service to the community
      • work history in a related field since the time of conviction
        or incarceration
      • an active occupational licensure, commercial driver

    licensure, or other licensure necessary to perform the specific duties of the job.

  3. Instruction as to how the applicant or employee can exercise their right to provide evidence or explanation directly to the employer.

Anti-Retaliation Protections

The amendments provide a rebuttable presumption of retaliation if an employer takes adverse action within 90 days of an applicant or employee asserting their rights under the Fair Chance Law. Employers must demonstrate that any adverse action was taken in good faith and unrelated to the protected activity.

Why compliance matters:

Employers with operations in Philadelphia—including those hiring remote or hybrid workers—who may fall under the city’s jurisdiction, should use the time before January 6, 2026, to review their policies and prepare for implementation of the Fair Chance Law’s amended requirements. Most notably, employers should update their pre-adverse action notices to comply with the expanded notice and rebuttal rights to ensure that they are based on objective criteria that are unrelated to the applicant’s or employee’s exercise of their rights under the
Fair Chance Law.

What SI is doing:

SI provides employment-related background check reports that comply with federal, state, and local employment laws. SI stays current with changes in the laws that affect how an employer can use an individual’s personal information in an employment decision. SI’s policies and procedures will include compliance with the new Fair Chance Law amendments.

 

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. The summary provided in this alert does not, and cannot, cover in detail what employers need to know about the amendments to the Philadelphia Fair Chance Law or how to incorporate its requirements into their hiring process. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

October 14th, 2025|Categories: Compliance Corner, Employment Decisions|Tags: , |

Do Employers Still Use Credit Reports for Hiring Decisions?

The short answer is yes, but not as often, and with certain limitations.

As hiring practices evolve, many employers are rethinking the use of credit reports in the hiring process. While still common in finance, government, and executive roles, credit checks for other positions are increasingly scrutinized for their relevance, fairness, and legal risk.

Why Some Employers Still Use Them:

  • To assess financial responsibility for roles involving access to money or sensitive data
  • To comply with industry regulations
  • To help mitigate fraud or identity risks

Why Many Do Not Use Them:

  • Credit history does not equal job performance
  • Risk of discrimination or bias
  • Growing legal restrictions at the state and local levels
  • FCRA compliance requirements are strict and costly if mishandled

Several states and localities have laws that limit or ban private employers from conducting employment credit checks, except in specific roles.

Best Practices for Employers:

  • Use credit checks only when job-relevant
  • Have policies in place defining what information on a credit report is disqualifying (note: credit reports do not show judgments or tax liens)  
  • If you’re a multi-state employer, consider eliminating credit checks if laws in one or more of your locations prohibit or limit these checks
  • Always follow FCRA guidelines

Credit checks are no longer a default step in hiring–they’re a strategic choice that requires careful consideration.

October 3rd, 2025|Categories: Compliance Corner, Employment Decisions|Tags: , |

The Fair Credit Reporting Act and Commercial Transactions

Does the Fair Credit Reporting Act (FCRA) apply to commercial transactions?

Although the FCRA is generally limited to consumer-purpose transactions (e.g., those primarily for personal, family, or household purposes), there is no straightforward answer regarding commercial transactions. This is because the FCRA defines a “consumer” as just an “individual.” The FCRA does not require the consumer/individual to obtain the loan specifically for a consumer purpose. Whether and how the FCRA applies depends on the facts and circumstances regarding the commercial transaction.

Commercial Loans, Personal Liability, and the Permissible Purpose Requirement

When an individual applies for a loan primarily for personal, family, or household purposes, the lender has a permissible purpose under the FCRA to obtain the individual’s consumer report.

However, a commercial transaction does not give rise to a permissible purpose except for a report on an individual – such as a sole proprietor or principal of a company – who will be personally liable for the debt. In a Federal Trade Commission (FTC) staff opinion letter dated in 2001, the FTC stated that “it is reasonable to view a business transaction in which an individual has accepted personal liability for the business debt as involving the consumer, thus providing a permissible purpose for the lender to obtain a consumer report under Section 604(a)(3)(A).”

A follow-up question is whether the commercial loan application itself is enough of a permissible purpose when the individual is only a guarantor and not otherwise related to the transaction or debtor. Another 2001 FTC opinion letter concluded that if an individual has any personal liability on a business loan, including just a guarantee, there would be a permissible purpose by means of the application for credit.

These opinion letters have been reaffirmed in subsequent FTC publications.

As a caveat, however, it is important to remember that these opinion letters are merely informal guidance and are not binding on the FTC, the courts, or other governmental regulators. That is why we think the best practice is to get written authorization from the individual (another form of permissible purpose under the FCRA) before preparing the report.

Reporting Adverse Information

When the FCRA applies to a commercial transaction, the restrictions for reporting adverse information should be followed. The restrictions generally prohibit reporting adverse information that pre-dates the report by seven years. Bankruptcies that pre-date the report by 10 years cannot be reported. Criminal convictions can be reported regardless of the date.

The FCRA also provides an important exemption to these reporting restrictions. If a credit transaction involves, or may reasonably be expected to involve, a principal amount of $150,000 or more, the restrictions on reporting adverse information do not apply.

Adverse Action Notice

When the FCRA applies to a commercial transaction, does the adverse action notice requirement apply? The general rule in the FCRA is that if the lender obtains a consumer report and takes adverse action based, in whole or in part, on any information in the report, the lender must give the consumer an adverse action notice. Therefore, in the commercial context, the lender should give the consumer an adverse action notice if the loan application is denied.

What about guarantors? Although the FCRA is silent on whether guarantors are included for purposes of an adverse action notice, the FTC clarified the issue in a 2000 advisory letter. If the consumer is only a guarantor (i.e., secondarily liable on the loan), then an adverse action notice would not be required to be provided to the guarantor. This is true even if the application is denied based on information in the guarantor’s consumer report.

February 13th, 2025|Categories: Commercial Transactions Due Diligence|Tags: , |

Reporting Criminal Convictions, the FCRA, and State Laws

Under the Fair Credit Reporting Act (FCRA), criminal convictions can appear in a background report regardless of when they occurred. It does not matter how old the conviction is. However, some states have passed their own legislation similar to the FCRA that does place restrictions on reporting criminal convictions.

Which states restrict reporting on convictions?

California, Colorado, Hawaii, Kansas, Maryland, Massachusetts, Montana, New Mexico, New York, New Hampshire, Texas, and Washington all have laws that limit the scope of reporting criminal convictions to seven years. In Hawaii, the seven-year limit is for felonies only; the reporting of misdemeanors is limited to five years. The District of Columbia limits the reporting of criminal convictions to 10 years.

All states not listed above follow the FCRA rule that criminal convictions can appear in a background report regardless of when they occurred.

The Salary Exception States

Seven of the states listed above allow an exception to their rule of limiting reporting criminal convictions to seven years. The exception is based on the salary the candidate is expected to make. If the salary exceeds a certain threshold, the seven-year limitation does not apply, and criminal convictions can appear in the candidate’s background report regardless of when they occurred.

Salary Exception States Candidate’s Potential Salary Threshold
Colorado $75,000
Kansas $20,000
Maryland $20,000
New Hampshire $20,000
New York $25,000
Texas $75,000
Washington $20,000

August 15th, 2022|Categories: Compliance Corner, Employment Decisions|Tags: |

Workplace Investigations and the FCRA

Before a background check can be conducted on an applicant or employee, the FCRA requires that an employer (our client) provide a written disclosure form and obtain a signed authorization from the applicant or employee. While these requirements will apply to nearly all background checks, there are two situations in which the FCRA permits an employer to dispense with the disclosure and authorization requirements — an investigation of (1) suspected misconduct relating to employment or (2) compliance with federal, state, or local laws and regulations, the rules of a self-regulatory organization, or any preexisting written policies of the employer.

This alleviates the concern that providing the subject with advance disclosure of the investigation and obtaining the subject’s authorization to conduct the investigation would greatly hamper the investigation itself.

However, the FCRA does impose an obligation on the employer if adverse action, such as termination or suspension, is taken against the employee because of the investigation. In those situations, the FCRA requires the employer to provide the employee with a summary of the nature and substance of the investigation. Although the FCRA does not specify the time period within which the employer must provide the summary, it seems reasonable to provide it just after the adverse action is taken.

The FCRA does not require the employer to provide the employee with a copy of any report prepared for the investigation, nor does the FCRA require the employer to disclose in the summary the sources of the information obtained in the investigation. If co-workers, vendors, customers, or other individuals provided damaging information about the employee, their identities would not need to be disclosed to the employee in the FCRA summary.

August 11th, 2022|Categories: Compliance Corner|Tags: , |

CFPB’s Advisory Opinion on Name-Only Matching for Consumer Reporting

On July 12, 2022, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion regarding the “permissible purpose requirement” of the Fair Credit Reporting Act (FCRA) as it applies to both a consumer reporting agency (CRA) and a user of consumer reports (e.g., employer).

The CFPB’s position is that name-only matching records in a consumer report violate the permissible purpose requirement in FCRA section 604(a)(3). The CFPB noted that consumer report users must ensure they do not violate a person’s privacy by obtaining or using a report without a permissible purpose, and that a consumer reporting agency should not provide reports with “possible matches” to users.

The CFPB further warned that including a disclaimer in the report, such as “this record was matched to the subject by First Name, Last Name ONLY and may not belong to your subject; your further review of the [source] is required in order to determine if this is your subject” does not adequately address the problem of using name-only matching procedures because the report may include information about a person other than the subject for whom the CRA has a permissible purpose. In the CFPB’s view, a disclaimer “will not change the fact that the consumer reporting company has failed to satisfy the requirements of 604(a)(3) and has provided a consumer report about a person lacking a permissible purpose with respect to that person.”

The CFPB’s advisory opinion raises the possibility that employers, as users of such consumer reports, could be held liable for FCRA permissible purpose violations resulting from a CRA’s matching procedures or mistakes. The opinion emphasized the CFPB’s position that there is strict liability for obtaining or using a consumer report without a permissible purpose and also included a reminder about criminal liability for knowing or willful violations of the FCRA provisions.

July 19th, 2022|Categories: Compliance Corner|Tags: , |

District of Columbia: Limitations on Reporting Negative Information in Background Checks Used for Employment Purposes

Although several states have laws analogous to the federal Fair Credit Reporting Act (FCRA), the District of Columbia does not. As a rule, the District of Columbia follows the federal FCRA regarding the limitations on reporting negative information in background check reports used for employment purposes. However, there are three notable exceptions where district law differs from the FCRA regarding reporting criminal records:

(1)        Records of arrests or criminal accusations that did not result in a conviction cannot be reported (unless the charges are pending);

(2)        Inquiries about criminal convictions cannot be made unless a conditional offer of employment is made; and

(3)        Convictions with a completed sentence that is more than 10 years old cannot be reported.

The first two exceptions are found in the district’s Fair Criminal Record Screening Amendment Act of 2014 codified at Sections 32-1341 – 32-1346 of the Code of District of Columbia, and the third exception is found in Section 2–1402.66 of the district’s Human Rights Law.

April 25th, 2022|Categories: Compliance Corner|Tags: , , , |

Are independent contractors considered employees under the FCRA?

Unfortunately, there is no clear answer.

The Federal Trade Commission (FTC) in its most recent staff report (in 2011) states that “employment purpose” is interpreted broadly and may apply to situations where individuals are not technically employees. Reports on consumers who are clearly not employees under traditional common law principles can nevertheless be construed as consumer reports for employment purposes.

It is up to the employer to determine the purpose of the background check based on its particular facts and circumstances. Some points to consider include:

1) Is the individual free from control and direction in connection with the performance of the service?

2) Is the service performed outside of the usual course of business of the employer?

3) Is the individual customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed?

If the answer is “yes,” then most likely a report on the individual would not be under the FCRA’s employment purpose.

While a few recent district court decisions have held that the FCRA employment purpose does not apply to contractors, the FTC has not budged on its stance that employees and nontraditional workers alike are protected under the FCRA.

Where there are gray areas, the conservative approach is to follow the employment purpose requirements but modify disclosure and authorization forms and other documents to reflect an independent contractor status.

April 13th, 2022|Categories: Compliance Corner, Employment Decisions|Tags: , , |

Reporting Employment-related Civil Lawsuits

For employment-purpose reports, the federal Fair Credit Reporting Act (FCRA) and its state law counterparts  are the laws that most often deal with when determining whether certain information is or isn’t reportable. However, federal laws prohibiting workplace discrimination can also limit what information can be included in these reports. This issue can arise when civil lawsuits are located in which a search subject has sued a former employer.

Although there are several types of federal laws dealing with workplace discrimination, taken together, these laws make it illegal to discriminate against someone (applicant or employee) because of that person’s race, color, religion, sex (including gender identity, sexual orientation, and pregnancy), national origin, age (40 or older), disability or genetic information. It is also illegal to retaliate against a person because they complained about discrimination, filed a charge of discrimination, or participated in an employment discrimination investigation or lawsuit.

Providing any such information to a prospective employer in a background screening report could be a violation of anti-discrimination laws which are typically enforced by the U.S. Equal Employment Opportunity Commission (EEOC).

February 17th, 2022|Categories: Compliance Corner|Tags: , , |

Does New York law require notice to the employee in order to have a consumer reporting agency conduct a background check in connection with the employee’s misconduct?

The NY FCRA sets forth notice and authorization requirements for investigative consumer reports as shown in  “https://law.justia.com/codes/new-york/2017/gbs/article-25/380-c/” NY Gen Bus L § 380-C. However, this section is silent on the issue of employee misconduct investigations and we found no language in NY FCRA law that is analogous to the federal FCRA exemption for employee misconduct investigations as provided in 15 U.S.C.1681a(y)(1).

When analyzing this question, we reviewed a 2006 opinion by the Oklahoma Attorney General that addressed a very similar issue. A state senator wanted to know whether OK employers could rely on the FACTA amendment to the federal FCRA that provides the exemption for employee misconduct investigations and dispense with the OK notice requirements for consumer reports. The OK AG said “no,” the reason being that the OK statute (which specifically references the previously enacted federal FCRA) was enacted before FACTA and the OK legislature did not indicate in the statute that amendments to the original FCRA would also be adopted.

Of course, the AG opinion is not a binding law anywhere, including in OK. But it does show how the issue may be analyzed to the detriment of the employer if it arose in litigation. Like the OK statute, the NY FCRA was enacted well before the FACTA amendment in 2003 (NY FCRA was enacted in 1977). However, unlike the OK statute, the NY FCRA does not include any references to the federal FCRA and, therefore, does not rely on any of its language as originally enacted. That is a distinction that can undermine an OK AG-type analysis to the NY FCRA.

The most we can say is that the NY FCRA does not address employee misconduct investigations and that the federal FCRA does set forth an express exemption from its notice requirements for such investigations. Whether there is a conflict between the NY notice requirements (or any other state’s notice requirements) and the federal exemption for employee misconduct investigations remains to be seen and there are no court opinions addressing the issue.

In the absence of guidance from NY FCRA regarding employee misconduct investigations, the employer can follow the federal FCRA exemption for these investigations. It would be prudent for the employer to document the need for confidentiality of the investigation, specifying the reasons why alerting the employee would undermine the investigation.

December 20th, 2021|Categories: Compliance Corner|Tags: , , , |
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