Alert

CFPB Issues New Guidance on AI in Employment Decisions

November 7, 2024

Technology—what did we ever do without it? There are many technological programs at an employer’s disposal, ranging from checking a candidate’s background during the application process to surveilling employee activity by using AI-based technology through smartphones and similar devices. Many of these reports contain sensitive information unknown to workers, which can significantly impact hiring decisions, job assignments, and career advancement.

Legislative Focus on AI in Employment Decisions

Legislators have begun to take notice of concerns surrounding employer use of AI in employment decisions. For example, on July 20, 2023, Senator Robert Casey (D-PA) introduced a bill that would establish an interagency task force to address employer surveillance and use of workplace technologies. To date, Senator Casey’s bill has not had any movement outside of its being referred for committee consideration.

Federal Agencies Respond to AI and Employment Bias Risks

Because of slow Congressional activity, federal agencies have been actively addressing employers’ use of AI through regulations, publications, or the like. The Equal Employment Opportunity Commission (EEOC) and the Office of Federal Contract Compliance Programs (OFCCP) have both addressed concerns that employer use of AI may cause bias or discrimination in the decision-making process. On October 24, the Consumer Financial Protection Bureau (CFPB) entered the fray by publishing a circular to address the issue.  

CFPB Reminds Employers of FCRA Compliance Obligations

The CFPB’s circular states that employers may be required to follow the Fair Credit Reporting Act (FCRA), which regulates information collected by consumer reporting agencies such as credit bureaus, medical information companies, and tenant screening services. In essence, the circular states that the FCRA applies to the use of third-party consumer reports regarding an employee’s background, monitored activity, and “black box” AI or algorithmic scores.

FCRA Requirements for Employer AI and Third-Party Reports

As a reminder, the FCRA requires the employer to obtain written consent from the employee, prior to obtaining a consumer report. The employer must also provide transparency about the data it will use in making an adverse employment decision and must further allow the employee to dispute any potentially inactive information. According to CFBP Director Rohit Chopra, “Workers shouldn’t be subject to unchecked surveillance or have their careers determined by opaque third-party reports without basis protections.”

Examples of FCRA-Applicable Consumer Reports

The CFPB considers the following types of consumer reports to be subject to FCRA’s requirements:

• Predicting worker behavior. Thinking about assessing the likelihood that workers may engage in organizing or estimating the probability that a worker may resign their position? If the report can potentially influence management decisions about staff retention and engagement strategies, the FCRA will apply.

• Reassigning workers. Thinking about how to better utilize your workforce by using automated systems to address worker performance, availability, and historical patterns to make future assignments? The FCRA will apply.

• Disciplinary actions. Considering whether to use automated systems to make the decision of whether to impose a written warning or to terminate employment? The FCRA will apply.

• Evaluating social media activity. Thinking about monitoring your applicant or employees’ use of social media in making a decision to hire or impose discipline? The FCRA will apply.

Action Steps for Employers

The CFPB recommends that employers take action now to address how the FCRA might come into play when they use third-party vendors or AI programs to address employees’ activities in the workplace. Thus, the agency is encouraging employers to review their current practices in using third-party consumer reports to ensure compliance with FCRA requirements.