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PRESS RELEASE
The Integrity News

Vol. XIII No. 1
ISSN 1081-2717

January 16, 2004


Federal Trade Commission (FTC)



The Fair Credit
Reporting Act (FCRA)
Has Been Amended
Again, on 12/4/03


The Fair and Accurate Credit Transactions (FACT) Act of 2003, which amends the FCRA, was signed  by President Bush on 12/4/03.

You can print your own copy of the newly amended  FCRA ( 85 pages long ) by going to the FTC website.

As a public service, the FTC posted this copy of the FCRA with it's most recent amendments on 12/18/03.     The new provisions of the FCRA added by the FACT  Act will become effective at different times between  December 31, 2003, and December 1, 2004, depending  on the results of rulemaking proceedings announced by the FTC and the Federal Reserve Board on December  16, 2003.   The effective dates will be made final by the  Commission and Board no later than February 4, 2004.

While most of the amendments from the FACT Act  have to do with Identity Theft, there is one particular  amendment specifically aimed at employers.   That new Section is 603 "(x) -- Exclusion of Certain  Communications for Employee Investigations".

Before being included as Title VI of the FACT Act, the draft was known as the "Sessions Bill".   Its goal was to enable companies to conduct investigations of  wrongdoing in the workplace "without the inappropriate application of the FCRA".    The investigators and law firms conducting these investigations did not want to be Consumer Reporting Agencies (CRAs) as the FCRA defined them because they found it "difficult" to cope with the issue of the prior Authorization by the employee.   They felt that the FTC's ruling (the Vail opinion) that  said they needed to have the signed Authorization of  the employee before investigating him or her, was an  "inappropriate" application of the FCRA.   They didn't want to be called to investigate and then be required to have the subject's authorization.   Yet, they did not  want to forge ahead ignoring the FCRA, because of the  significant potential liability, including punitive damages,  for failure to comply with the FCRA.    So they lobbied, and got this exclusion put in the FCRA by the FACT Act.

While we agree that employee wrongdoing should be  investigated, the reason for pointing this out is that  it can expose the employer to other liabilities.

For years The Integrity Center, Inc. has advised clients to have an Authorization and Release of Liability on file  for EVERY employee that is effective for the life of their  employment.   Even very nice employees can do strange  things.   With the Authorization on file, if an investigation  is required, the authorization is already in place.   Over  the years, The Integrity Center, Inc. has discussed this  with many employers, and procedures for accomplishing  this have been written about and discussed.

The problem with the new amendment is that it applies to "suspected misconduct".   This leaves the door open for accusations whether they are sincere or ill-meaning.   An unwitting employer may not know the motivation behind an accusation.    In plain English, an investigation  can be initiated if the motivation is a complaint of real  harm -- or merely driven by spite, jealousy, revenge, or  outright manipulation.

The employee being investigated does not have to be  told that an investigation is taking place, and at the  conclusion of the investigation (quoting the new law) "After taking any adverse action based in whole or in  part on a communication described in paragraph (1),  the employer shall disclose to the consumer a summary   containing the nature and substance of the communication  upon which the adverse action is based, except that the  sources of information acquired solely for use in preparing  what would be but for subsection (d)(2)(D) an investigative  consumer report need not be disclosed."

In other words, an accusation can now be made about an employee, a secret investigation can be conducted of the employee without their prior signed Authorization, the employee  can be given an adverse action up to and including  termination, and the employee does not have to be told  who said what at what time, other than the employer shall disclose to the employee a summary of the "nature and  substance" of the investigative report.

It is important to note that amendment "(x)" has as its first condition that "but for subsection (d)(2)(D), the communication would be a consumer report".   Section (2) deals with "exclusions".   In other words, this method of operation is ONLY to be used, as the FACT Act -- Title VI says, for "Employee Misconduct Investigations".   This amendment does not change an employer's other responsibilities for having prior written Authorization, with respect to consumer,  or investigative consumer, reports.

It is the opinion of The Integrity Center, Inc., as a risk management firm, that if employers now adopt this new procedure for the convenience of their investigators, rather than take the steps to have an Authorization on file, that they can be exposing themselves to a whole  new avalanche of law suits.

The Integrity Center, Inc. is not in the business of giving  legal advice.   If your company finds itself with the need  to conduct an investigation of an employee, you should discuss these implications with your legal counsel and  seek his or her advice.

Feel free to call The Integrity Center, Inc. (972) 484-6140  to discuss any of the new amendments.


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