Podcast Summary: AGG Talks: Background Screening

Episode: What is FCRA Preemption, and Why Should You Care?
Host: Henry Chalmers, Partner, Arnall Golden Gregory LLP
Date: May 13, 2022

Episode Overview

In this episode, Henry Chalmers explores the concept of federal preemption—specifically, how the Fair Credit Reporting Act (FCRA) may supersede state laws in the background screening industry. The discussion outlines why understanding preemption is essential for background screening companies, furnishers, and employers, particularly in minimizing lawsuits and choosing the most favorable legal venue. Henry provides a legal primer on preemption, details FCRA’s preemption provisions, and reviews recent case law that has introduced further complexity into the issue.

Key Discussion Points and Insights

1. Understanding Preemption and Its Legal Foundations

• Definition: Preemption is the legal principle that federal law can override or nullify conflicting state laws (00:35).
• Importance for Industry:
  • Fewer claims and simpler litigation when state law claims are preempted.
  • Often preferable for defendants to litigate in federal court, which becomes possible if only federal claims remain.

Quote:

“If you can automatically get rid of a plaintiff's state law claims, you're already well ahead of the game. ... In general, as a defendant, federal preemption is your friend.”
— Henry Chalmers (01:00)

• Constitutional Roots:
  • Commerce Clause (Article 1, Section 8, Clause 3): Empowers Congress to regulate interstate commerce, covering background screening and credit reporting agencies (02:02).
  • Supremacy Clause (Article 4, Clause 2): Establishes federal law as the “supreme law of the land” (02:25).

2. How Preemption Works in Practice

• Supreme Court Position:
  • Presumption against preemption unless Congress clearly indicates otherwise.
  • Courts often interpret preemption clauses to favor state law unless federal preemption is explicit (03:09).

3. FCRA Preemption Provisions

• Section 625A (15 U.S.C. § 1681t):

  • General rule: FCRA does not preempt state laws.
  • Numerous exceptions: Many specific subject matters are in fact preempted, making for a “patchwork” regulatory landscape (03:48).

• Section 610 (15 U.S.C. § 1681h):

  • Bars most state law claims (e.g., defamation, invasion of privacy, negligence) against consumer reporting agencies (CRAs) and furnishers unless there is malice or willful intent to injure (04:38).
  • Result: Courts frequently dismiss state law claims against CRAs and furnishers, especially claims like negligence and defamation, breach of contract, unfair trade practices, and civil conspiracy (05:00).

Quote:

“All in all, it's a real patchwork of things subject to preemption. The end result, though, is that the exceptions largely swallow the rule, and preemption exists throughout much of the FCRA.”
— Henry Chalmers (04:08)

4. Recent Court Decisions and Their Impact

• Examples of Preemption in Action:

  • Pennsylvania: Federal court dismissed a negligence claim without the required malice or willfulness standard (06:00).
  • Washington: Federal court dismissed a defamation claim (06:15).

• Removal to Federal Court: Once state claims are dismissed, remaining FCRA claims can be moved to federal jurisdiction (06:30).

• Exceptions to Preemption:

  • Courts do not always find preemption; for instance, a Texas court allowed a state law with additional disclosures to stand (06:48).

• First Circuit Decision: CDIA v. Frey:

  • Background: The case involved amendments to Maine state law on medical debt and economic abuse debt reporting (07:08).
  • Initial ruling: District court sided with preemption.
  • Appeal: First Circuit reversed, finding preemption to be more “nuanced and complex,” and held that only claims related to specific subjects in Section 625 are preempted, making outcomes less predictable (07:40).

Quote:

“The First Circuit ... took the district court's simple, straightforward ruling and muddied the waters, reversing the district court's decision and finding the question whether the FCRA preempted the amendments to be much more nuanced and complex.”
— Henry Chalmers (07:46)

Notable Quotes & Moments

• On the practical impact of preemption:

  “Courts regularly dismiss state law claims… This essentially leaves only claims made under the CRA itself or the handful of remaining exceptions to preemption.”
  — Henry Chalmers (05:10)

• On evolving legal clarity:

  “The question of preemption is a little less clear than we may have thought.”
  — Henry Chalmers (08:19)

Timestamps for Important Segments

• 00:11–01:12: Intro and practical reasons why preemption matters.
• 02:02–02:47: Constitutional basis—Commerce and Supremacy Clauses.
• 03:09–03:48: The default judicial approach to preemption.
• 03:48–05:00: Analysis of FCRA’s preemption provisions.
• 06:00–06:30: Recent case law dismissing state claims under FCRA preemption.
• 07:08–08:19: CDIA v. Frey and the increasing complexity of FCRA preemption.

Conclusion: Key Takeaways

• For HR professionals, employers, CRAs and information companies:
  • FCRA preemption can be a powerful defense against state law-based suits.
  • The regulatory environment is complex and still shifting, so vigilance is needed.
  • Not every claim is automatically preempted—details and exceptions matter.
  • Recent appellate decisions, such as CDIA v. Frey, highlight the continuing evolution in this area.

Quote:

“Like so much of the law, the devil is in the details and traps still exist, but the unwary and the unlucky.”
— Henry Chalmers (08:29)

For further questions or feedback, listeners are encouraged to contact Henry Chalmers via the AGG website.