Form U4 Authorization
Service : Compliance Services
Question: Is the authorization in the Form U4 sufficient to authorize a firm to run an outside background check prior to registration?
Response & Analysis:
No, the authorization in the Form U4 is not consistent with the Fair Credit Reporting Act (FCRA)’s requirement that a disclosure/ authorization be in a stand-alone document without any extraneous information.
The FCRA also requires the company to obtain the consumer’s written authorization to conduct a background check. The Federal Trade Commission (or FTC) has made clear— as have the courts—that Section 604(b)(2) of the FCRA does allow the authorization to be part of this stand-alone document, but no other information can be included. The Form U4’s authorization includes language allowing a firm to file documents electronically, information on service of process, a release of liability, as well as other extraneous information that is not consistent with the FCRA’s “stand-alone” requirement. Thus, the authorization in the Form U4 is not sufficient for a consumer to authorize a background check to be procured from a third party.
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