CFPB Proposes Expansions to the Fair Credit Reporting Act’s Scope

September 01, 2023

The Director of the Consumer Financial Protection Bureau (CFPB) recently announced plans concerning next month’s rulemaking. The CFPB intends to expand the Fair Credit Reporting Act (FCRA) to encompass additional categories of data.

Notably, it would expand activities that generate a “consumer report” and what constitutes these reports. These potential future regulations would significantly impact how companies treat and transmit related data. It may also affect which companies must comply with the FCRA’s strict rules.

The Expansions

In addition to the announcement, the Bureau released an FAQ concerning the forthcoming proposal. According to the two sources, the proposed rules would classify data brokers as consumer reporting agencies under the FCRA. This change would depend on the activities performed by the data brokers. As such, these brokers must comply with the FCRA’s standards for accuracy and dispute resolution procedures.

Another noteworthy expansion to the FCRA includes the Act now covering the definition of “credit header data.” The CFPB explained that credit header data includes “personally-identifying information like someone’s name, address, or Social Security number, which traditional credit bureaus hold. Much of the existing data broker market relies on credit header data purchased from the big three credit bureaus to create their individual dossier.”

As such, the rules would make selling this data illegal for reasons outside the FCRA’s “permissible purpose.” These include purposes such as employment applications, credit and insurance underwriting, or applications for government benefits.

The Cause

A core driver of these changes concerns the potential to abuse artificial intelligence and predictive decision-making tools. Under these changes, the FCRA’s regulations would encompass data brokers that disclose information used to train AI programs or power automated decision-making tools. One example included in the announcements included those used in employment. However, the effects of these changes would affect more than these purposes.

Many expect the CFPB to disclose more information concerning these proposed regulations next month. In addition, employers and other interested parties will have the opportunity to provide feedback on these expected changes. The final product of this rulemaking process could prove significantly different than those under current scrutiny.

The CFPB and other federal agencies have continued living up to their commitment to increasing focus on the FCRA and artificial intelligence relationship. As such, employers should review their policies concerning consumer reports and hiring tools using artificial intelligence to remain compliant. One way to ensure compliance is by partnering with a background screening company. A trustworthy provider will utilize their experience to provide compliant reporting and assistance in understanding responsible use of these hiring tools.

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