Recent Supreme Court FCRA Ruling Could Have Implications for Employee Background Screening

A recent ruling from the United States Supreme Court could have far-reaching implications for employers regarding compliance with the Fair Credit Reporting Act (FCRA). While TransUnion LLC v. Ramirez did not directly concern employee background checks, facets of the Supreme Court’s ruling apply to the FCRA and FCRA noncompliance lawsuits. The vase could reduce the number of FCRA lawsuits filed against employers in the U.S.

The Supreme Court ruling relates to a class action lawsuit against TransUnion—one of the three major credit reporting bureaus in the U.S.—by individuals whose credit files showed inaccurate information. The platform flagged each plaintiff in the class as a “potential match” to the federal list that tracks terrorists, drug traffickers, and other threats to national security. 

The “Ramirez” in the case is Sergio Ramirez, who alleged that he tried to obtain credit to buy a car, only to have the dealer pull his credit and notify him that his name matched the federal terrorist watch list.

Ramirez and the class of plaintiffs alleged two grievances in their lawsuit against TransUnion. The first was that the credit reporting agency had not followed “reasonable procedures” to ensure that the information in consumer credit files was accurate. In this case, those reasonable procedures would have involved TransUnion checking with the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) to determine whether any of the potential matches were authentic matches.

The second allegation in the lawsuit was that TransUnion sent mailings to each class member that included “formatting defects”—specifically, incomplete credit report files or reports that failed to include a summary of consumer rights under the FCRA, such as information about how to dispute inaccurate information on a report.

In the original trial in California, the Ramirez class won a multimillion-dollar verdict from the jury. TransUnion appealed that decision to the Supreme Court, arguing that many of the plaintiffs in the class had suffered no “injury” because of the inaccurate credit file information or the formatting defects. Without the ability to prove injury, TransUnion argued, many of the members of the class had no legal standing to bring or participate in a lawsuit—or receive damages.

The Supreme Court sided with TransUnion in the appeal, ruling that most of the plaintiffs in the class action lawsuit did not meet the standard of “actual harm” that is necessary to bring a claim of FCRA negligence. The court also denied plaintiff arguments that there was a “risk of future harm,” because the plaintiffs could not prove that such future harm had ever emerged or resulted in a denial of credit or some other adverse action.

While this case applies specifically to credit reports, experts say that it will likely have implications for FCRA compliance in employee background screening. 

The Ramirez ruling may raise the bar for what constitutes legal standing when someone claims FCRA negligence or noncompliance. The ruling emphasizes the importance of a plaintiff proving that they have suffered actual harm or injury to bring an FCRA negligence case. If an employer were to overlook aspects of FCRA compliance—such as by including too much information on an employee background screening disclosure and consent form—an FCRA lawsuit against that employer would likely only hold weight if a plaintiff could prove actual harm or injury. 

The best way for employers to avoid FCRA lawsuits is to-the-letter compliance. Read our thorough breakdown of FCRA compliance standards to make sure that your business is minimizing its legal risk.