State Farm Defeats Applicant’s FCRA Claim

By Erin L. Winters November 6, 2018
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​State Farm's decision not to hire an applicant who did not meet the minimum credit requirements of the role was not challengeable under the Fair Credit Reporting Act (FCRA). This was true even though the insurer did not notify the individual of the contents of his credit report prior to making its employment decision, a federal appeals court ruled.

The plaintiff applied for a position with State Farm through the company's Agency Career Track (ACT) hiring program. State Farm required a background check, including a credit history review, for all ACT applicants to determine their fitness to market financial and insurance-related products. The company followed the requirements of the FCRA to obtain the plaintiff's consumer credit report and did not extend an offer to the plaintiff after his credit report revealed charged-off debt and past delinquent accounts. The decision was consistent with its hiring policies.

The FCRA requires employers to provide job applicants with a copy of their credit report and afford them the opportunity to correct, if necessary, any erroneous information in the report before taking any adverse employment action based on the report. State Farm issued the pre-adverse letter to the plaintiff as required by the FCRA, but prior to the plaintiff's receipt of the letter, a company representative verbally informed him of its decision not to hire him.

[SHRM members-only HR Q&A: Background Checks: When do employers need to comply with the FCRA?]

Once the plaintiff received the pre-adverse letter, he provided State Farm with an explanation of the delinquent accounts. State Farm then informed the plaintiff that he had been withdrawn from the ACT program because of the debt.

The plaintiff sued State Farm and alleged that he was not provided sufficient time to correct errors in his credit report. The district court dismissed the lawsuit.

On appeal, the 9th U.S. Circuit Court of Appeals considered the plaintiff's argument that the court incorrectly concluded that he could not bring the lawsuit because he did not suffer harm as a result of State Farm's hiring decision. In its decision, the appeals court conceded that while the plaintiff pled an FCRA violation, he was unable to demonstrate an actual or substantial risk of harm. The court followed the recent U.S. Supreme Court decision from Spokeo Inc. v. Robins, in which the high court concluded that publishing incorrect information about a person that does not cause harm does not violate the FCRA. Similarly, the 9th Circuit concluded that, based on State Farm policy, the existence of the debt disqualified the plaintiff, regardless of any potential errors in the credit report.

Dutta v. State Farm Mut. Auto. Ins. Co., 9th Cir., No. 16-17216 (July 13, 2018).

Professional Pointer: Employers that use an applicant's credit history when making hiring decisions need to rigorously follow all FCRA notice requirements, as well as any analogous state law notice requirements, to avoid potential claims.

Erin L. Winters is an attorney with Pacific Employment Law in San Francisco.

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