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FCRA Requirements when Searching the PDB

Question: Does the FCRA’s “pre-adverse action” requirement apply when searching the NIPR Producer Database (PDB)?

Response & Analysis:

Yes. The information contained in the PDB is subject to the Fair Credit Reporting Act (FCRA) and thus the pre-adverse action process must be followed when the information is used for employment or contracting purposes.

The National Insurance Producer Registry (NIPR) created the PDB, which is a central repository of producer licensing information updated on a timely basis by participating state insurance departments. In order to provide users with a more comprehensive producer profile, the PDB also includes data from external databases such as the Regulatory Information Retrieval System (RIRS). Because the PDB is a secondary source that compiles licensing information from various primary and other secondary sources, its information is subject to the FCRA. As such, access to the PDB is limited to individuals and entities with a “permissible purpose” under the FCRA.

One such “permissible purpose” under the FCRA is “employment purposes.” The term “employment purposes” when used in connection with a consumer report means a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.1 Per the Federal Trade Commission (FTC)’s advisory opinions on this issue, the term “employment purposes” should be interpreted liberally to effectuate the broad remedial purposes of the FCRA.

In an advisory opinion to Herman L. Allison, the FTC was asked whether a trucking company’s screening of drivers who are independent contractors falls under the FCRA’s definition of “employment purposes.” The FTC adopted the U.S. Court of Appeals for the Fourth Circuit’s broad interpretation outlined in Hoke v. Retail Credit Corp. (521 F.2d 1079 (4th Cir. 1975)), and stated that it views the trucking operation’s hiring, or consideration for hiring, of independent drivers to be for “employment purposes,” as defined by § 603(h) of the FCRA. In a similar advisory opinion to Harris K. Solomon, the FTC was again asked whether the screening of independent insurance contractors falls under the FCRA’s definition of “employment purposes.” The FTC reiterated that this term should be interpreted broadly and would include independent insurance contractors. Thus, a company’s screening of insurance producers and agents likely falls under the FCRA’s definition of “employment purposes.”

The FCRA imposes certain additional requirements when an end-user is using a consumer report for employment purposes. One such requirement is the “pre-adverse action” requirement set forth in Section 604(b)(3), which states that before taking any adverse action based in whole or in part on a consumer report, the person intending to take such adverse action must provide the consumer with: 1) a copy of the consumer report; and 2) a copy of the Summary of Rights Under the FCRA. The term “adverse action” includes a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee (including decisions relating to hiring, retention, promotion or reassignment).

Information obtained from the PDB is considered a “consumer report” that is obtained for employment purposes when it is used to determine whether to hire or contract independent insurance agents and producers.

Thus, if you are contemplating taking adverse action against an individual based on information obtained from the PDB, such as not hiring or contracting the individual as an insurance agent, you are required to follow Section 604(b)(3)’s pre-adverse action requirements. In addition, you must also comply with Sec. 604(b)(2)’s “standalone” disclosure/authorization requirement before you conduct a search on any individual. The FTC permits employers to use the consumer’s initial authorization as a “blanket” or ongoing authorization, so the same authorization can be used for any subsequent searches of the PDB. However, this practice is not permitted in California and employers operating in this state must obtain a new authorization before each PDB search. In addition to the pre-adverse action and standalone disclosure/authorization requirements, employers must also comply with all other applicable FCRA and analogous state requirements.

1 15 U.S.C. § 1681a(h).

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This document and/or presentation is provided as a service to our customers. Its contents are designed solely for informational purposes, and should not be inferred or understood as legal advice or binding case law, nor shared with any third parties. Persons in need of legal assistance should seek the advice of competent legal counsel. Although care has been taken in preparation of these materials, we cannot guarantee the accuracy, currency or completeness of the information contained within it. Anyone using this information does so at his or her own risk.

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