What is the Difference Between State and Federal FCRA Laws?

Can states enforce consumer reporting laws that are different from the federal Fair Credit Reporting Act? Recent clarifications shed light on the difference between federal and state-level FCRA rules. Find out more.

Regulatory compliance is of the utmost importance for every business, even when such concerns only occasionally arise. For every company, however, some rules and regulations apply across the board—particularly during the hiring process. Several rules exist at the federal and state levels to protect job applicants from discrimination and unfair invasions of privacy. Chief among these is the federal Fair Credit Reporting Act, or FCRA.

However, there can be some confusion when sorting out what regulations apply to your business. You may wonder if there are any state-level FCRA regulations that also apply to your business. Are there? The answer requires understanding what the FCRA sets out to do and how enforcement of the FCRA works.

What is the Fair Credit Reporting Act?

Passed in 1970, the FCRA's aim was simple: to consolidate rules surrounding the use of consumer information. Before the FCRA, invasive practices such as requiring detailed information about personal behavior were the norm before banks would grant lines of credit to individuals. The FCRA defined new consumer protections and created standardized guidelines for businesses to follow. Later, provisions of the FCRA were determined to also apply to background checks as a type of "consumer reporting."

So, what is the difference between state and federal FCRA laws if this legislation was meant to unify a patchwork of rules found across the states?

Federal Law Always Overrides State Law

No matter what an FCRA-like state law says, nothing in its text can override what the federal FCRA says. This is broadly true—federal law, on principle, overrides state law. Therefore, if a state-level law contains provisions that contradict the FCRA or would otherwise undermine the effectiveness of the federal law, that language is null and void. Employers who ignore federal law in favor of potentially less restrictive state-level laws open themselves up to lawsuits and even potentially costly punitive action.

Confusion over conflicts between state and federal law in this area led to a key clarification in the summer of 2022.

The Consumer Financial Protection Bureau Clarifies What States Can and Can't Do

States still pass and maintain their own fair credit reporting rules. According to the CFPB, these rules are permissible when the federal FCRA does not pre-empt them. In other words, laws that do not cover the same ground as the FCRA are acceptable. Similarly, states can regulate when and if certain information appears on reports—but they cannot define the length of time such information remains available, as the FCRA defines that period.

Most importantly, however, the CFPB clarified that states remain free to create and enforce state-level FCRA-like laws that go beyond the scope of federal law. States can therefore create rules that are stricter than what federal law requires, but they cannot weaken the federal law. Some states, such as California, already have consumer protection laws on the books that go beyond the provisions of federal law.

Keeping Your Business in Compliance

Although changes to the federal FCRA are unlikely, the clarification that states can further strengthen their consumer protections could lead to short- and long-term changes. Staying current on these changes is vital for effective compliance and avoiding regulatory headaches, especially when your business frequently engages with hiring processes governed by the FCRA. 

The backgroundchecks.com knowledgebase provides additional important information about these laws and how your business can safely and legally use reporting products. Stay up to date on the latest changes and maintain your compliance with our help today.

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Michael Klazema

About Michael Klazema The author

Michael Klazema is the lead author and editor for Dallas-based backgroundchecks.com with a focus on human resource and employment screening developments

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