Great Lakes Wire

The Consumer Finance Protection Bureau (CFPB) has issued a circular addressing the use of AI in employment decisions and its compliance with the Fair Credit Reporting Act (FCRA). The circular poses a critical question: “Can an employer make employment decisions utilizing background dossiers, algorithmic scores, and other third-party consumer reports about workers without adhering to the Fair Credit Reporting Act (FCRA)?” The response provided is unequivocal: no. Employers are reminded that they cannot make such decisions without adhering to FCRA guidelines.

The CFPB released this circular as part of its efforts to "take action to curb unchecked worker surveillance." Activities covered by the circular include recording current workers’ activities, personal habits and attributes, and biometric information. Modern AI technologies track various employee behaviors such as driving habits, task completion times, messaging frequency, web browsing patterns, and keystroke activity. Companies providing software for these monitoring activities could be classified as “consumer reporting agencies.” If so classified, employers using their software must comply with FCRA requirements.

The circular outlines two key questions for enforcement considerations regarding third-party involvement under FCRA: Does the employer’s data usage qualify as a use for “employment purposes” under FCRA? Is the report from a “consumer reporting agency,” which assembles or evaluates consumer information?

Employers must consider these factors when employing third-party providers for AI analysis and recommendations. When providers fall under FCRA regulations, employers have several obligations including providing subjects with an FCRA-compliant disclosure document without extraneous information, obtaining written authorization from applicants or employees to access their information, supplying any state or county-specific notices, following a two-step pre-adverse/adverse action process with necessary documentation and allowing subjects at least five business days to dispute findings.

Organizations currently using or considering AI in employment decision-making should assess whether their information suppliers may be classified as Consumer Reporting Agencies and ensure compliance with applicable regulations.

Sources include CFPB guidance on background report providers and users from Cooley LLP via JDSupra; Lexology's coverage on employers' use of AI tracking; and further details from consumerfinance.gov.