Commercial Drivers License (CDL) Searches Prevent Negligent Hiring Lawsuits

Running a CDLIS search is critical if you hire commercial drivers

If you hire commercial drivers, or contract independent drivers, it is critical that you run a search of the Commercial Driver’s License Information System (CDLIS).

By running this search commercial drivers can’t hide previous driving infractions, accidents or any back-up driver’s licenses. And, it protects your claim with an insurance agency as most carriers will not cover a driver who has an active license in more than one state.

This CDLIS service is a cooperative exchange of commercial driver information between jurisdictions nationwide. APSCREEN runs the driver’s social security number (SSN) through all 50 state’s DMVs and reports where that SSN is on record as associated with a driver’s license.

According to the Commercial Motor Vehicle Safety Act of 1986 (CMVSA), the basic purpose of CDLIS is to assure that commercial drivers have only one active driver’s license, one active record and have passed state-sanctioned driving skills tests, thus helping employers comply with the Federal Motor Carrier Safety Act (FMCSA).

In addition, if an employer hires a driver, they become eligible for the Employers Pull Notice (EPN) program available in several states which provides automatic updates at the time of an infraction.

When a company contracts with an independent driver, however, they are not qualified for the EPN program but must request that the driver provide a K3-style driving record from the DMV.

Employers may also conduct the CDLIS search frequently to monitor its driver’s behaviors after being hired, because some drivers will try to hide infractions – or tickets – from other states under alias names.

Under APSCREEN’s proprietary approach to implementation of this CDLIS service, prospective driver candidates are given ample opportunity to disclose information about their driving history and licensure which concentrates the focus on integrity as well as on the substance of discovered record(s). The primary reason for APSCREEN’s omission strategy is the lack of plaintiff cases involving omission-based elimination of candidacy claims.

For example, if a driver is contracted for a job in California, the employer can search the CDLIS prior to hiring and six months down the line. This gives a much-needed opportunity to determine if a driver has more than one license and a window into post-employment driving acts which could affect employer liability.

Driving a Commercial Motor Vehicle (CMV) requires a higher level of knowledge, experience, skills, and physical abilities than that required to drive a non-commercial vehicle. To obtain a Commercial Driver’s License (CDL), an applicant must pass both skills and knowledge testing geared to these higher standards.

Additionally, CDL holders are held to a higher standard when operating any type of motor vehicle on public roads. Serious traffic violations committed by a CDL holder can affect their ability to maintain their CDL certification.

Most drivers obtain a CDL through their home state and it is illegal to have a license from more than one state. In addition, special endorsements may be required if you or your company drivers drive any of these vehicles: a truck with double or triple trailers, a truck with a tank, a truck carrying hazardous materials, and/or a passenger vehicle.

Employers are subject to a penalty of $10,000 if they knowingly use a driver to operate a commercial motor vehicle without a valid CDL and untold liability if a driver has been found to have been negligently hired.

This is yet another tool for the employer’s toolbox to avoid negligent hiring lawsuits and make transport a safer environment for all motorists.

Critical Ethical Considerations in Employment Screening

Employment Screening Founder

Tom Lawson, Founder APSCREEN

by Thomas C. Lawson, CFE, CII

What if your employment screening company doesn’t first positively identify your candidate?

A case in point: “Edwin Banner” (not real name) of the Des Moines Banners, a comfortable but eternally bored in his plush Manhattan office on the 71st floor decided that the personal exploits intended on his next vacation needed a little more pizazz.

Sixteen years after his second conviction for rape of a minor under the age of 14, and vowing to himself never to ply his craft in such a manner as to get caught again, “Ed” was getting restless and needed more than just the thrill of purposefully attacking defenseless children – he needed recognition

Criminal Psychologists and FBI Profilers call this progression of behavior “escalating.”

Thank goodness Ed got bored with his job because if he hadn’t, his intended ninth victim like the eight before her, would have gone silent, looking up from a watery grave in the deepest one of his hometown’s four nearby lakes.

In addition to Ed’s relentless pursuit of something more tangible with regard to his horrifying sexual appetite, and what led to his ultimate undoing, was Ed’s never-ending quest for bigger money and more grandiose professional recognition, which fortunately, for at least one little girl in a certain Southwestern city, drove Ed to seek employment with my client.

Notwithstanding the client’s ties to a certain national law enforcement agency, as well as a standing offer to quietly vet potential top-level candidates for his buddy. In addition to gathering what they thought was a thorough background screening process, they all missed Ed’s misdeeds.

Fortunately to the in-house recruiter something just didn’t seem right about Ed during the interview process. Even though Ed’s Minnesota Multi-Phasic Personality Inventory (MMPI) came back with no adverse personality traits (quite a feat in and of itself); something just didn’t sit right. As a result, they hired me to see if anything in Ed’s background was missed.

I was able to find Ed’s latest conviction and final adjudication date which overlapped the date of his application for employment and consent for a background check by 22 days.

That means that after serving a little over 9 years in the state penitentiary with time off for good behavior, Ed was released from the jurisdiction of the court (case fully adjudicated) exactly 6 years and 343 days prior to his application with my client’s firm.

At this point you might be asking: “How can you provide a criminal conviction record past the seven-year, statutory reporting limit imposed by the state where the prospective employer is located if a conviction happened more than nine years past the legal reporting period?”

Aside from the no-limit nature of employment-based public record reporting available at the Federal level under FCRA Section 613(a)(2), [15 U.S.C. § 1681k]; the federal law defers to state Law. And, in many states a seven-year, state-level reporting limit is common.

Had Ed been convicted in a state such as West Virginia, there would be no reporting limit and thus under the federal rules, reporting Ed’s conviction would be timely regardless of what the date of his consent was and whether or not the screener was competent.

Since the company had a zero-tolerance policy for felony convictions, in Ed’s case, since he was convicted in New Mexico, whoever was supposed to know this failed to so advise of Ed’s prior bad act even though it was well within the statutory reporting period for New Mexico if only for 22 days.

Ethical Consideration and Best Practice

What most employers, and an embarrassingly large share of background screening industry players do not understand, is that there are actually three reporting options available to Consumer Reporting Agencies (CRA) when it comes to public records that could have an adverse impact on prospective employment under 15 U.S.C. § 1681k:

1. (Good but amateur) Reporting conviction(s) that occurred within a given statutory reporting period. For example, in several states a CRA may report convictions for seven years back from the date of a consumer’s consent to perform a background check.

2. (Better but not Great) Searching for 10 years for convictions that occurred and where the adjudication(s) in which might overlap into a given statutory reporting period (say one of the states that impose a seven-year reporting period).

3. (Best Practice – Great) Searching to identify attributable residential, employment or traveled to/from jurisdictions back to the age of emancipation (age 18) for attributable conviction(s) or adjudication(s) that may overlap a given statutory reporting period and strongly recommending to the end-user that searches of all the applicable jurisdictions are the only way to ensure a complete convictions check.

Option #3 is the best practice because it opens the door for the widest possible search parameter for a CRA to determine reportable convictions for attainable, attributable and/or otherwise discoverable employment, traveled to/from and residential jurisdictions since the age of emancipation of the candidate (18 years), calculated to lead to convictions resulting in adjudication(s) which may have been completed with the reporting period.

Needless to say, the screening company’s ethos with regard to the thoroughness employed in searching for job-excluding crimes is defined by its choice to ignore all three options.

Above and specifically, there was a conscious ethics lapse both as a result of ignoring the available reporting options, not knowing of them, or failing to advise the client of possible discoveries that could lead to reportable convictions.

Ethical Platforms Facing Employment Screeners

The information below illustrates the most basic ethical platforms facing employment screeners namely;

1. Know and advise the extent of what is reportable to an end-user in order to assure compliance with the FCRA.

2. Understand the methods of searching that are certain to gather the most complete and accurate conviction information (by hand, at the court clerk’s public counter) in addition to lead-generator type private-, or public-assemblage repositories and Positive Candidate Identification®.

3. To know and convey to the end-user the limits of any non-public repositories.

4. Ensure that the search platforms encourage thoroughness in the capture of any and all applicable convictions. Know what the various courts provide in the way of felonies and misdemeanors and advising the client that, in order to determine the full extent of available convictions that meet either the end-user’s criteria or a reporting standard in the absence thereof.

5. Report applicable convictions in as timely a manner as is humanly possible; all things considered.

A Second Case Study

Aside from the aforementioned example of horrible Ed, here is another practical example of why the ethical platform that my company employs would have prevented a tragedy.

A bus driver completes his shift then stops and parks his bus. An elderly, disabled passenger asks the driver to go 100 yards further so he doesn’t have to walk so far to his. The bus driver curtly advises that he is at the end of his shift, refuses to accommodate the patron, and then orders the patron off of the bus.

Upset at the driver’s patent disregard for his well-being and responding in anger, the patron uses several racial slurs to express his displeasure. In response, the driver removes his uniform shirt, follows the patron off of the bus onto the sidewalk and proceeds to inflict severe bodily harm to the passenger by beating him mercilessly. The driver is arrested, convicted and sent to jail.

Prior to exposing the public to this violent driver, the bus company completed an inadequate and poorly spec’d background check. That plebeian check missed a three-count, armed robbery conviction from 20 years prior to the date of consent but with completed adjudication within seven days of the seven-year reporting statute of the state where it happened.

That is 6 years and 358 days before the driver executed his consent to have the background check run. Best practice #3 outlined above would be the only way the background screening company could have known to report the horribly violent conviction for which the driver spent 14 years in prison and 5 years on parole.

This critical background information could have potentially prevented the attack on the elderly passenger and what could also result in a significant trial damages verdict or settlement (this case is pending at the time of this writing.)

Of great consequence in these scenarios are the ethics of both the background check purveyor and the end-user.

Naturally defense counsel in the case of the bus driver is desperately attempting to assert a faux industry standard which limits the reporting of any convictions in that state to the seven-year statutory reporting period and assumes that since the conviction was 20 years prior to the date of consent, that no conviction report was actually (legally) available to the bus operator.

If only that argument had a snowball’s chance in hell of prevailing. Not only was the reporting opportunity within the statutory reporting limit but in this case, the unethical screener decided to call themselves anything but the CRA that by statute they actually were.

As a result of their positioning; the screener willfully ignored the appropriate federal reporting requirements, namely FCRA Section 607 and 613a2, which mandates accuracy in this context.

Many screeners refuse to call themselves a CRA but under 15 U.S.C. § 1681k, the very nature of a request of any third party to search for and report public records as part of an end-user client’s hiring process establishes them as a CRA.

Sadly, in this a case ethics and thoroughness would have prevented this tragedy. In addition, so would have understanding and following the law with regard to illegal and/or incomplete reporting including ultimately refusing to identify itself by the legal definition asserted under federal Law, namely being a CRA.

Not only were ethics nowhere to be found, but conscious evidence of a constructive trust existed not only through the screener’s failure to even identify itself by how the law defined it; but also by its willful disregard for the reporting laws.

Big damages are on the horizon and hopefully the screener and the end-user will find a way to settle since the prima facia case is so clear that a trial should be avoided at all costs.

No one in Ed’s present life knew of his past deeds. The town that he grew up in, and returned to repeatedly in order to commit the most heinous of horrifying acts, kept cases like Ed’s conviction quiet and did not report any of its criminal cases to the FBI’s identification bureau – a situation that is chilling but more common than it should be.

What About Legal Repositories?

In another dreadful example of background checks gone painfully wrong, the Boulder City and Nevada Police Department, which openly and actively runs free fingerprint checks to local charities, provided a “No Record found” result based on fingerprints for an intended counsellor at St. Jude’s Ranch for Children for an applicant by the name of Larry Wisenbaker.

During Wisenbaker’s trial for actively molesting 16 young victims, the prosecutor Clark County Deputy District Attorney Gerald Gardner, called Wisenbaker: “…. the most prolific serial sex offender we have ever prosecuted in this state.”

As the Expert Witness of record in the ensuing civil case against Wisenbaker, I was hired to assist in the civil prosecution of St. Jude’s for negligently hiring him. Very early in the process, I identified two jurisdictions where Larry Wisenbaker had plied his deviant craft within the prior seven years, in residential and employment jurisdictions in both Texas and Georgia.

Both of these jurisdictions do not cooperate with federal authorities with regard to criminal reporting and thus the results of his fingerprint check yielded the no record finding by the Boulder City police department.

To their credit, and to the credit of a wonderful damage-controlling Boulder City Detective who was deeply befuddled by my almost immediate discoveries of not one but two convictions that were not in the FBI’s databases, they helped sink St. Jude’s for what would be a settlement in the multi-millions of dollars.

Even the above-mentioned police officer was unaware of the non-reporting jurisdictions and became my poster-child for the next installment of ethical platforms – i.e. Positive Candidate Identification®.

What is Positive Candidate Identification?

In essence, had the standardized Boulder City fingerprint checks been preceded by simple and inexpensive identification checks, performed at the most basic levels, Wisenbaker would have been identified as living and working in jurisdictions not covered by the FBI’s Identification Bureau.

And, if an astute and knowledgeable investigator was paying attention, a simple inter-agency call to either or both jurisdictions’ law enforcement departments would have yielded the same fruit that I was able to uncover through calls to the court clerk’s offices after I ran my thorough ID Check.

Not uncommonly, these discoveries were made, literally within first hour that I was retained. To add insult to injury was Wisenbaker’s employment application with St. Jude’s where he actually admitted to the existence of felonies with no details.

Unfortunately, no one in the HR Department followed up with him to ascertain the details of these convictions; which would have easily precluded him from further consideration of candidacy.

Wisenbaker had been convicted of a host of charges which were easy predictors of what he would do while in St. Jude’s employ. Ultimately, his abusive actions against 16 children resulted in one victim being convicted to life in prison for subsequently committing murder.

How to Thoroughly Identify Your Employment Candidate

When it comes to being able to astutely and thoroughly identify an employment candidate the ethical question follows the prescriptions below and for most companies; provides not only a substantial data access task, but also a cost challenge as well.

Most end-user HR departments are unaware that so-called cheap screeners are potentially damaging their end-user clients by failing to properly invest in the single most important tool in the screener’s toolbox: the relentless pursuit of identity.

That search at the very least must include:

1. Credit bureau social security identity and credit bureau header products independent of services that offer these products as “integrated” in their ID platforms, such as ID Verify® which is good and should be used as it also uses Social Security Administration (SSA) data to enhance its reports.

Note – there are three credit bureaus: Experian, Equifax and TransUnion and up to nine identification products available through them.

The question becomes; do you run all of them or should your knowledge be so deep that you clearly know which ones are dependable and which are redundant? What do you do if you don’t have access to all three?

The answer is to run everything you can to get to a place where you have exhausted the potential for new information; whatever that takes.

2. Poll several or all of the proprietary repositories such as TransUnion/TLO, LocatePlus, etc. for identity, name variations, SSN and date of birth (DOB) variations and prior addresses.

3. Best practice with regard to Positive Candidate Identification® is to obtain identity products from all available sources until it is clear that you have succeeded in thoroughly identifying the candidate.

This process requires not only access to all available identification repositories; but as well intimate knowledge of the completeness of each repository polled and the willingness of the screening company to subscribe to all available services regardless of associated costs.

What About Searching Lead-Generators?

What lies herein is a sophisticated approach to additionally determining the depth and breadth of possible convictions and potential identity variations on a given candidate prior to ultimately dispatching researchers to applicable court jurisdictions.

Big data, as the consumer-plaintiff’s bar has coined the term for private, national criminal database repositories such as CoreLogic/National Background Data, Megacriminal and a host of others; can be either a very good friend or a terrible enemy depending upon the context in which it is used. This data is, however, invaluable if they are used internally and not as a final result.

What is inarguable is that big data’s searchable fields over wide areas usually include many federal, state and local jurisdictions. While helpful, one must never forget that the search value of any private repository lies in the use of either all of them, or as many as one’s breadth of knowledge leads them to conclude is satisfactory in arriving at the universe of available information. Does that process sound expensive to you?

You bet it is – but as the above cases, and countless others cases I could attest to, all of these efforts must be employed if an ethics-based, practical and thorough screening process is to occur and to assist in determining once and for all if a candidate is worthy of an employer’s trust.

Thomas C. Lawson, CFE, CII is a Life-Member of the ACFE and the longest-serving member of the Editorial Review Committee for FRAUD Magazine. Tom is the Founder of APSCREEN, the nation’s oldest Factual Employment Screening firm, a term Tom coined to differentiate APSCREEN’s level of care in the screening process. Tom is also thought to be the longest-serving Negligent Hiring Expert Witness from the Improper Employment Screening and FCRA Compliance perspectives with his first case served in 1984. Tom’s CV is available for review via email.

Understanding Nuances of Locating Missing Pension and Benefit Plan Participants Without a Social Security Number

Locating missing pension and benefit plan participants

Locating missing pension and benefit plan participants

by Thomas C. Lawson, CFE, CII

Under Title 29 CFR 4050.4 the diligent effort compliance requirement involves locating missing pension and benefit plan participants based on use of the participant’s social security number (SSN).

Having the SSN is very important because the entirety of the file chain is rooted in the SSN.

Also having the SSN makes the commercial locator service better able to identify your participant to an acceptable consumer reporting agency standard.

In recent years, identity theft has skyrocketed. This awareness has not been lost on the compliance or audit departments of the root sources of the identification information.

That includes the SSA’s Identification and Death Master File (DMF) sections. Even more importantly, credit bureaus and other source agencies that make a significant contribution to the successful locating of your missing participants have been effected.

This stands to reason because how can one administer the pension or benefit plan if one does not possess the participant’s SSN?

Just three reasons why an SSN cannot be located

1. What if a transposition error occurred somewhere in the chain of custody of the management or administration of a given consumer’s file? Possibly by the HR Department, Actuary or TPA and no one caught the error until services like ours made the discovery during a routine locate.

2. Your vested participant could have departed employment with the plan sponsor and for some reason the file went inactive. Then the participation was re-activated beyond 7 years and the SSN was lost because the employment file was destroyed as a matter of course.

3. The TPA, HR Benefit Department, or someone else in the plan administration chain tasked to locate the missing participants simply can’t retrieve the stored file(s).

Innocuous and innocent as these scenarios seem; they wreak havoc for any commercial locator service.

The kicker is that under all attributable rules, there is no provision anywhere for a mistaken or a completely missing SSN in the administration stream so how does one even get to first base in finding a lost participant?

Over the years we have invested at least as many legal dollars as we have algorithm dollars trying to figure out how to re-unite people with their pension plans. Even with ERISA and Labor Codes, there are many anomalies in uncharted water when it comes to locating someone without an SSN

Low-priced services are a waste of your time

While there are companies offering low-priced, locate services in concert with archaic and often labor-intensive manners, they often only do half of the job you require

Often their services rely on you to complete the puzzle using expensive administrative dollars to do so and most of these cheaper services don’t offer alternatives to an SSN search.

Being able to handle nuances and these anomalies plays a big part in successfully re-uniting people with their money with a minimum of expenditure and more importantly, time.

That has been our mission since we started in 1988 and is also the reason we created the Open Locate Platform which bases a search in criteria other than a participant’s SSN.

Employee Locator criteria for searches without an SSN

There is a bit of a rub in using non-SSN data to locate these folks, but the rub does not lie in the use, it lies in the access. Let me explain.

Today anyone who uses providers of credit reports, employment background checks, or commercial locator services, in fact – all end-users have to be properly vetted in order to be classified as a legitimate end-user of the service.

To further complicate things, commercial locator services do not technically fall under the Fair Credit Reporting Act (FCRA). So it ends up a potentially damaging consumer free-for-all if the commercial locator service does not maintain itself to an FCRA standard.

This is critical so that the consumer may have direct and unfettered access to whoever touches their personal information in the event that the consumer asserts any form of foul play.

Good news is that as long as any given end-user can justify the use of the consumer’s private identification information, and the provider can prove that it thoroughly determined that the service it provides was to a legitimate end-user of the information, the information remains secure.

The consumer is protected and most importantly, that consumer is sent down the road to interview other end-users of their personal information which may have resulted in a compromise.

With careful initial vetting of a given end-user we are able to provide current missing participant locate services to our market channel based not only on a participant’s SSN, but also now based on their name, date of birth, and/or name and former address.

We actually have special contracts with our data providers to expand the service base and we are subject to audit at their whim because of it.

Does doing it right increase the cost?

Once caveat that bears discussing is the cost. Using the SSN to connect the participant with his pension or benefit is the least expensive form of locating missing employees. Without the SSN, a potential drama known as back-end-compliance comes into play.

As a commercial locator service, in this context, using anything other than an SSN to locate a missing participant puts the locator service and the end-user in the highly compromising position of mimicking an identity thief.

It thus exposes the locator service (and its end-users) to additional scrutiny especially if the identity is actively under assault.

Under assault is defined as if at the time of the inquiry, theft of that person’s identity is already underway, or there is an active police case number assigned, or they are the subject of a law-enforcement sting operation.

Under these circumstances, the locator service and the end-user could come under the scrutiny of law enforcement or other equally as ominous governmental threats. Even when a locator service or the end-user’s involvement is clearly documented to be innocent, permitted, justified, proper and in the normal course and scope of their respective business models.

In the case of numbers 1 & 2 above circumstances happening you are likely going to have to bite the bullet as far as the increased cost is concerned. In the case of number 3, someone is going to have to determine if the increased costs are justified or if the archived file can be found.

In the end

albeit at a higher cost. As long as the end-user vetting is competent and everyone is on the same page, these alternate methods can be a lifesaver for the participant being rightfully reunited with their pension or benefit.

Thomas C. Lawson, CFE, CII is a Life-Member of the ACFE and the longest-serving member of the Editorial Review Committee for FRAUD Magazine. Tom is the Founder of APSCREEN, the nation’s oldest Factual Employment Screening firm, a term Tom coined to differentiate APSCREEN’s level of care in the screening process. Tom is also thought to be the longest-serving Negligent Hiring Expert Witness from the Improper Employment Screening and FCRA Compliance perspectives with his first case served in 1984.

Is Your Employment Screening Company Inferior?

The Fair Chance Act

The Fair Chance Act

by Thomas C. Lawson, CFE, CII

Your choice of an employment screening company, due to pending legislation called The Fair Chance Act, now more than ever is a critical decision that includes your provider being 100% FCRA 607 & 613 (a) (2) Complaint and 613 (a) (2) Capable.

The reason? Many Human Resource departments rely on candidate-disclosed, criminal histories as a basis to continue candidacy but the proposed Federal Law, which mimics the “Ban the Box” laws in several states and removes that available disclosure.

Simply put what that means now is if your background check provider is inferior, you have the possibility of missed records which could place you on the radar screens of a rapidly maturing Plaintiff’s-Attorney Bar.

Traditionally inferior background screeners use the disclosure to ‘lighten’ the depth of the search in order to save money. Shocking to most, this is a common practice by discount or low-end screeners and validates the concept: you get what you pay for.

With the recent bankruptcy of the Nations’ three largest background check companies, and with more likely on the way, it is a best practice to examine just exactly who you have hired to keep the wolves away from your front door.

Here is more on the proposed law:

Bipartisan, Bicameral Group of Lawmakers Unveil Legislation Aimed at Federal Contractors

Ban-the-box legislation has been introduced for the first time at the federal level, reflecting a broader trend witnessed in dozens of states and municipalities. On September 10, a bi-partisan group of lawmakers in both houses of Congress introduced the Fair Chance Act (S. 2021 / H.R. 3470) which would prohibit federal agencies or contractors from asking prospective employees about whether they have a criminal record before a formal job offer has been extended.

Once a conditional offer of employment has been made; an employer would be permitted to ask about the applicant’s criminal record and revoke the offer based on the results of a criminal background check.

The proposed law includes exceptions for sensitive positions including law enforcement, national security, and positions with access to classified information. Protection is provided in the bill for whistle blowers who report coworkers for not following the law and penalties range from a warning for a first violation to suspensions of increasing length up to a $1,000 fine for subsequent violations.

The Fair Chance Act was introduced by Senator Cory Booker (D-NJ) and Representative Elijah Cummings (D-MD). Co-sponsors of the bill are Senators Ron Johnson (R-WI); Tammy Baldwin (D-WI); Sherrod Brown (D-OH); and Joni Ernst (R-IA); Representatives Darrell Issa (R-CA); Sheila Jackson Lee (D-TX); Earl Blumenauer (D-OR); Bonnie Watson Coleman (D-NJ) Cedric Richmond (D-LA); John Conyers (D-MI), and Bobby Scott (D-VA).

The lawmakers supporting the bill said that as many as 70 million people with criminal histories may face barriers to employment and highlighted that 18 states and more than 100 local entities have already enacted similar measures; with private employers following suit by adopting internal company policies to ban the box.

The Fair Chance Act is currently pending in committee in both chambers and will be the subject of a hearing on October 7 in the Senate Homeland Security and Government Affairs Committee.

Call me at 800 277-2733 if you have any questions about your employment screening procedures.

The Good, the Bad & the Ugly – Lease Defaults and Bad Debts

by Thomas C. Lawson, CFE, CII

Lease Defaults for commercial tenants

Lease Defaults for commercial tenants

Lease Defaults-There’s an old adage out there that is due for a revision. “The more things change,  the more they stay the same” is actually no longer true in the context of that inescapable business dark cloud known as the “lease default, investment-gone-south, and/or bad debt.”

In financial circles these days, instead of hearing the instruction “go out and collect our money,” we hear all too often “if you can’t collect it, find a way to write it off!” Quite a change from old school thinking!

Those of you more seasoned professionals may wonder “how did things get this way?” You have a valid question. The answer of course is even more surprising and actually contrary to many business issues these days, we can actually trace the one cause that exists for this latest and (perceptibly) most devastating blow to creditor rights.

In short, the credit world has been turned on its ear primarily because of identity theft, and secondarily the response by the U.S. Congress to thwart what has been easily classified as the fastest-growing, most widespread crime in history. Many believe that identity theft is the black plague of modern times and except for some fairly swift moving legislation, it could actually have wiped out the entire electronic worldwide financial system if left unchecked.

The problem that comes into play however for creditors, lessors and investors stems from a unique anomaly in that the information needed to help a creditor complete the sale is identically the same information sought by identity thieves to exact their craft on unsuspecting victims.

Just as with the need to learn of bank accounts, stock portfolios and other liquid assets upon which this scourge will electronically manipulate, so exists the legitimate need of the creditor for the same information upon which to legitimately execute a collection effort, TRO or levy once a court judgment is received. That makes the creditor an unwitting accomplice in the eyes of Congress and ultimately the victim of the laws designed to protect the American consumer from identity theft.

Just as the passage of Gramm-Leach-Bliley Act and the updating of the Fair Credit Reporting Act via the Fair and Accurate Credit Transactions Act and other privacy statutes preclude identity thieves from gaining access to your financial information, at the same time legitimate creditors are precluded from access of the same kind of financial information seriously thwarting creditors? ability to collect the debt other than by the determination of assets and liabilities via public records.

This sets up a huge stumbling block on the road to the completion of the sale, IF the lessor, lender or investor is not savvy, and has not paid attention to an unlikely source for the ultimate relief of an noncollectable lease default, “investment-gone-south” or simple bad debt .

For purposes of this article, your bad debt is defined as follows:

1.Either the debt is deemed collectible and the pursuit of litigation viable through obtaining a collection due diligence report; or,

2.It is determined to be worthless by virtue of the same report.

Now when discussing #1 above, this course of action is usually referred to as a “litigation determinant” report, or a report designed in concert with your independent knowledge to lead you to the determination as to whether or not to charge-off or litigate the debt.

It is usually supported by the discovery of public record based asset(s) which may include real property, vehicles, vessels, aircraft, other businesses; and is “netted” by a corresponding determination of the offsetting liabilities such as mortgages, competing creditors (including tax liens, judgments, competing litigation, etc.) providing a thumbnail net worth position of the debtor.

#2 is the worthlessness or deductability part in the title of this article!

Now enter the Internal Revenue Service. The IRS Publication 535 entitled, “Business Expenses,” Chapter 10, Section 5; sub categorized as “When a Debt Becomes Worthless,” states:

This means that the IRS has given creditors a wonderful way out of a bad debt by no longer requiring a creditor to go through an expensive court process in order to obtain a worthless judgment previously required to legitimately write-off the bad debt.

Remember what it says in IRS Pub. 535:

“You do not have to wait until a debt is due to “determine” whether it is worthless

“…A debt becomes “worthless” when there is no longer any “chance” the amount owed will be paid.”

Pure and simple it means that as long as you perform “Collection Due Diligence? in the form of Lease Default Reports, Contract Due Diligence Reports and/or Investor Due Diligence Reports to determine if a debtor is insolvent, and the debt is determined to be worthless, you NO LONGER have to go to court to prove up the bad debt, and that is easily accomplished through a decent Collection Due Diligence report in any of the styles cited above.

This also means that the landscape of the pursuit of assets in satisfaction of the debt has changed forever, since you now only need to show if there would be sufficient attachable assets less liabilities upon which to determine if the debt is worthless. Naturally, if you do identify attachable net assets upon which to levy, your decision to pursue more aggressive collection efforts is justified and the course is charted by the same report.

This fact combined with the lack of availability of banking and financial (liquid asset) information as a result of the Financial Privacy laws other than in the public record (UCC filings) and no easily available credit report, means that the determination of the worthlessness of a debt can be reported by a third party through research of the public record.

And, in terms of what the IRS looks at as viable due diligence, third party is key and tantamount to an easy charge-off.

So while you may wish to have the scourge of identity theft dispatched in favor of your ability to collect the debt, you may thank the IRS for recognizing that the maze of privacy laws has seriously stifled creditors to the point that all you need to do now is determine the worthlessness of a debt in order to write-it off.

The good news for creditors is that rather than spending $5 to $10 grand and a lot of wasted time to get a worthless court judgment, you can spend 5 to 10% of that figure to determine if you should pursue further efforts to collect it — or write it off.

Finally, relief for creditors.

For a .pdf or copy of IRS 535, please go to the following website:


* What you MUST know about the use of Consumer Credit Reports and “Ancillary” Credit Reporting Products.

As to personal guarantors, recently, the U.S. 9th Circuit Court of Appeals upheld new language in the FACT Act, which clearly defines the word “credit”. As a result of the new definition, the position that is being advocated is that the “collection of an account” is a permissible purpose to obtain a consumer report only when the collection is in connection with a credit transaction.

Simply put, this means that, unless a personal guarantee was obtained, and a Consumer Credit Report was authorized and obtained prior to issuing the credit, or securing the lease and/or tenant improvements a credit report may NOT be obtained for collection purposes. Simply put, unless a copy of the original credit report obtained prior to the issuing of the credit or guarantee is provided along with a copy of the original signed (appropriate) consent (obtained at the outset of the credit qualification process), a collection credit report cannot be included in this report, as a matter of law.

** What you MUST know about “Bank Account or other “Liquid Asset” Searches

Let’s remove the mystery surrounding locating bank accounts which are only discoverable through publicly available Uniform Commercial Code Searches, the ONLY legal method available under Federal and State Laws. In the event a bank is found through legal means, attached to the report will be suggested language for use in Writs of Execution and Restraining Orders. In the case of a business bank account search, sometimes banking associations are revealed through the Business Credit Reporting service utilized in the report and thus writs may be placed on the discovered institutions. Business bank accounts are “quasi-exempt” from the protections afforded Consumers (Individual account holders), and are thus available sometimes through an instruments such as a Uniform Commercial Code Financing Statement and/or a business credit report, however the methods of obtaining those accounts (“sourcing through a bank contact, and/or ‘pretexting’) are still highly illegal under the G-L-B Act.

*** A Word About Legal/Case-Law Database Information Providers

As law firms seek new ways to increase legitimate billable hours, and as a natural outgrowth of the advancing support professions, such as paralegals, and with Shareholder meetings more often discussing ways to improve the bottom line, law firms are easily lured into the opportunity to have their paralegals and legal assistants perform once “investigator-traditional” services, such as asset searches, locating people for service of process, etc. This phenomenon has been spurned quite effectively by responsive marketing programs asserted by the major on-line case law houses, which provide “one-stop shopping” for law firms on the go.

Not a day goes by when we don’t hear:

“please conduct a collection due diligence for us, we have spent thousands of dollars in time and fees clicking our favorite case law site, only to end up with information we don’t feel we can depend on, and which we can’t in good conscience bill our client for” Sound familiar?

About the author:
Thomas C. Lawson, CFE, CII lives for the purveyance of “quality-yet-controlled” legally reportable information. As a Certified Fraud Examiner, and Certified International Investigator Mr. Lawson is the longest serving member of the Editorial Review Board of FRAUD Magazine, a Life member of the Association of Certified Fraud Examiners a founding member of both the National Association of Professional Background Screeners and the Public Record Retriever Network; a Friend of The Institute for Real Estate Management, Former Chapter Chairman of the Orange County Chapter of the American Society for Industrial Security, Professional Member of the Professionals in Human Resource Management Association, and the Society for Human Resource Management, and is the Founder & CEO of APSCREEN, the nation?s oldest, continuously operated factual employment screening firm, with divisions specializing in tenant qualification, due diligence, fraud examination and expert witness testimony.

Lawson was a civilian research contractor of record for the Charles Keating/Lincoln Savings matter, the drafter of the employment screening and “asset search? guidelines for the civilian asset disposition contractor of record for the Resolution Trust Corporation and has appeared in many national television and radio shows, as well as has been published extensively throughout his career and can be reached through for presentations.

To review our Commercial Tenant Screening services go here:

How to Handle Paperless Employment Screening

Paperless Employment Screening

Paperless Employment Screening

Posted with permission taken from a conversation from the CALHR Forum

A*: My company is working toward the goal of becoming paperless. How have your HR departments accomplished this and how is it working out? I look forward to your responses. Thank you all very much. I appreciate it.

Tom: The biggest problem that I see online having undertaken the paperless route last year is that in our business, many/most times we need a live signature to verify past employment and with schools to prove consent for the release of transcripts, degree verification, etc.

  • While Electronic Signatures for consent purposes for employment-related Consumer Reports (background checks) are still not yet strictly legal under the FCRA (no matter what the FTC says), many are tempting fate by executing consent through an eSignature and learning that when it comes time to verify past employ men, and education that they are having to go back to the candidate for a wet signature, which is a pain. We believe that it is just smarter to obtain the written consent at the outset supplementary to the eSignature that way we are in place and can move forward; faster once a signature is demanded by a prior employer or educational institution.

Other than that, an HR paperless process undertaking is best expedited through the use of a good HRIS and ATS system, such as Yardi, iCIMS etc.

Keep in mind, A* that going paperless is a fundamental change in the way one does daily business so be patient and take the time to ensure that each and every piece of paper you substitute for an electronic data bit is planned and that the data is backed up at least three times; that way your redundancy will ensure seamless and uninterrupted operational flow.

Imagine losing the only file you have where you once had paper and can’t put your hand on a critical document.

Not pretty. Hope that helps!

A*: This is extremely helpful, Tom. Thank you

Tom: My pleasure – I never realized what a fundamental change is effected when you get rid of paper; but the most direct upside benefit to doing that is the cost, space and time savings.

At APSCREEN, we have gone paperless gradually, which has been terrific for us – so my advice is to not be in a hurry to go paperless, do it gradually.

Looking just at the paper, toner cartridge (for printers and fax machines) and telephone time charges for faxing in and out, our costs associated with the processing of paper have been reduced by almost 80%! That translates to maintaining our ability to reduce prices rather than increase them and that is a big deal if you want to maintain fixed bid contracts like most of our Aerospace clients do.

File storage costs have also been reduced by 95% because we now store our files electronically (we shred after scanning) so we have eliminated all but a small percentage of square feet of floor space where file cabinets and Bankers Boxes once stood.

We did see a one-time cost increase – we shredded most of our paper files over the past two years after scanning those files so where we once stood in a sea of file cabinets in our lobby, I can add more cars! (For those  on-clients who have not visited us, our lobby is full of collector and classic cars which is the only way to have a lobby in my view [Big Smile] with the only drawback being that when we get a visit, we rarely ever get around to talking about  employment screening – everybody wants to look at the cars!)

APSCREEN Celebrates 35 Years Aerospace Employment Screening

Aerospace APSCREEN Employment Screening

Aerospace APSCREEN Employment Screening

Aerospace Screening – Tom Lawson, CEO APSCREEN says, “For over 35 years APSCREEN has screened the professionals who make and service the critical stuff that America’s Space & Defense Programs and the Military depend on.”

Line personnel, designers, engineers, assemblers, supervisors, managers, strategists, and software developers at every level who have been responsible for making you safe in the air, on the ground, on the water; in battle and during peace time have been screened thoroughly by APSCREEN.

Those who build and service rocket engines, aircraft, ships, command systems, and other critical components of a free society have been screened through the APSCREEN so as to ensure that not only qualified people are put in the loop, but those whose backgrounds demonstrate that they run their personal lives as carefully as they ply their craft.

“With the almost daily changes in compliance and the background screening business drawing more and more attention to itself in the civil and bankruptcy courts, it is nice to have APSCREEN in your corner,” Lawson said.  “Unlike most other employment screening agencies, APSCREEN has never been sued, has the same ownership since 1980, the same business model, the same thorough attention to detail, the same forward-compliant thinking and the same amazing customer service – and has been long recognized as the employment industry’s gold standard.”

Many of America’s core contractors and thousands of others have been part of the APSCREEN family for over our 35 years and understand completely how background screening is an essential and critical component of competent hiring which should not be left up to amateurs.

There is only one employment screening company like APSCREEN.

Government Accountability Office (GAO) Releases Report on Criminal History Records

GAO Release Report on Criminal Records

GAO Release Report on Criminal Records

by Thomas C. Lawson, CFE, CII

Criminal History Records – The GAO, a watchdog that investigates how the federal government spends taxpayer dollars, released a report in February 2015 on the use of criminal background checks titled ‘Criminal History Records: Additional Actions Could Enhance the Completeness of Records Used For Employment-Related Background Checks (GAO-15-162).’ The complete report from the GAO is available at

Among the many other things that this report provides (both extraneous and salient) what I take note of most is that, in addition to standardized protocols for those able to access government criminal records – that the Federal government and the States should be policing themselves so as to ensure better reporting and that both the States and the Fed are going to have to follow the same transparency, thoroughness and compliance protocols that we in the private sector have to follow in screening employment candidates.

As we all know, the Feds rely on the States to contribute records to its internal repositories to assess candidates for government service but the GAO study clearly extolls that even the NCIC, FBI Identification bureau and other internal repositories used to vet the criminal backgrounds of its candidates are indeed fallible and can contribute outdated, false, misleading or otherwise damaging information on prospective candidates.

This report also suggests that certain qualified industries in the private and quasi-public sectors (“qualified” to access the internal repositories) are in the same category as the government, and in the GAO’s usual way, suggests that completeness should be the order of the day even though it says it with more words than necessary for those who can breathe and move toward light.

Further and what is not really discussed but one has to believe is part of the thinking process (just as with the private sector), is that the Plaintiff’s lawyers are circling and the GAO realizes it so the GAO’s new mantra is that it is about time those who use the State and Federal record access to vet candidates in sensitive industries, live up to the same standards that we in the Consumer Reporting industry have been required to live by ever since the enactment of the Fair Credit Reporting Act on 26 October, 1970.

To those very few of us who live and die by the belief that Contemporaneous Notice is no substitute for a thorough records search at the courthouse, and report ONLY under the FCRA 607 & 6143a2 standard this is no big deal, in fact in 1980 when APSCREEN started, we screamed the need for thorough services like ours because of the gross inadequacy of both State and Federal criminal repositories’ records that were being researched in MILSPEC and Aerospace contexts.

The incidences that we have reviewed where agency records failed are legion since we started in 1980 and the most telling of all is State of Nevada v. Wisenbaker where local, state and Federal Law enforcement records missed multiple convictions in multiple separate jurisdictions and which resulted in one of the most horrifying multiple child molestation cases in Nevada resulting in multiple life sentences adjudicated upon Larry Wisenbaker, a man who in the words of the Nevada Attorney General was ”The most heinous sex offender in the history of the State of Nevada.”

In this case I was the expert witness of record in the ensuing civil case against St. Jude’s Ranch for Children who hired Mr. Wisenbaker to oversee a cabin housing four troubled boys and where most of the sexual assaults took place.  When conducting a routine background check,  St. Judes’ asked the Henderson, NV Police Department to fingerprint Larry Wisenbaker and the record came back clear, even though he disclosed that he was convicted of felonies on his employment application.


Our opinion? Whoop-De-Diddly-Dee – just another government report trying to get amateur CRA’s and the State and Federal repositories to do the job right, which they should have done, imprimis.

More on Ban the Box Law and Hawaii Court Decision

Ban the Box and Hawaii Supreme Court Ruling

Ban the Box and Hawaii Supreme Court Ruling

It’s all the rage – employers high and low are concerned that their rights are being eroded by virtue of some grand plan to undermine the American employer through this recent legislation.  Sorry conspiracy theorists but nothing could be further from the truth!

Actually when you look at the underlying theory of it, these laws make perfect sense and essentially forces a hiring manager to do what he or she should have been doing all along.

Granted lawsuits filed under this statutory discipline are fact-specific but generally, the concept should be an easy one for most HR professionals to assimilate — should you be seasoned enough to avoid the kinds of knee-jerk reactions that result in the promulgation of these ever-encroaching laws.

“Knee-jerk” in this case means that just because you learn that a candidate has been convicted of a crime that is no reason to categorically deny employment  just because of the conviction unless the conviction clearly applies to the job description.

In essence what “ban-the-box” does is now force decision makers to apply logic and commonsense to the hiring process and, specifically, to reasonably and thoughtfully determine whether or not a particular criminal conviction applies to a given job description; as well as be able to justify any decision to eliminate candidacy based on a given conviction.

When we started APSCREEN in 1980, one of the many mantra’s we espoused to our clients was to apply appropriate ‘tests’ to determine if a particular conviction would affect the candidate’s ability to execute his or her duties and/or provide undue risk to the organization, the safety of customers, clients and invitees.  We advised this basic principle because we felt that  as the Reporter, we had a duty to advise our clients to use the records we provided judiciously and to not simply throw the baby out with the bathwater meaning that sometimes good people could be missed if more careful logic wasn’t applied to the hiring process.

In:  ZAK K. SHIMOSE,vs.HAWAIII HEALTH SYSTEMS CORPORATION dba HILO MEDICAL CENTER, SCWC-12-0000422;  the Court held that in order to use a criminal record in the determination of further candidacy:
“the conviction record (must) bear a rational relationship to the duties and responsibilities of the position.”

This seems to be the prevailing conclusion of the most of the courts around the country which generally favor the more thorough reasoning process in determining the applicability of a given conviction as it might relate to a given position.

Sound familiar?  It should – since the courts in these instances are closely following benchmarks established in the EEOC’s April 25, 2012 Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII but are more liberally applying these concepts to job descriptions instead of simply limiting them to Title VII issues.

All that has really changed for the seasoned HR professional is that the justification used to eliminate candidacy can be more heavily scrutinized by third parties and ultimately, the courts.

Of course, as with any reasonable approach to such a law, it is important to be mindful (and not to be scared away from the extremely valuable tool of criminal background research) that even though what you decide may be second guessed in the future, NOT to forget that if a reasonable set of guidelines is applied, damages are usually minimized by the logic of the process and the reasoning.

In our view, even though you may be second guessed someday by a Plaintiff’s attorney or Court, if you use sound reasoning practices and sensible logic in your decisional process,  while a trier of fact may not agree we believe that fewer or no damages will be assessed if the logic was not faulty; but rather ultimately determined to be a difference of opinion.

And don’t forget to apply the tried and true rule that clearly eliminates most potential problems in this and most other areas of the law, aside from whatever factors may influence your decision, always find the best and most-qualified candidate for the job based on ALL factors, not just one, or a few. That means you can still do what your gut tells you, just don’t let your gut be guided solely by what could later be determined to be an irrelevant criminal conviction.

Bottom line?  Follow the law, carefully determine if a given conviction applies to any aspect of the proposed position,  and make sure that if you do get rid of an applicant because of a criminal conviction that you document your reasons for candidacy denial based on it. Don’t let the law intimidate you.

More Accurate Credit Reports? National Consumer Assistance Plan Announced by Three Major Credit Bureaus

National Consumer Assistance Plan Announced by TRW, Transunion, Experian

National Consumer Assistance Plan Announced by TRW, Transunion, Experian

by Thomas C. Lawson, CFE, CII

More Accurate Credit Reports – On March 9 Equifax, Experian and TransUnion delivered a press release stating they plan to enhance their ability to collect “complete and accurate consumer information.” The idea is to give you, the consumer, more transparency as well as the ability to interact better with the bureaus regarding your own credit report.

The press release stated, “The National Consumer Assistance Plan we are announcing today will enhance our ability to offer accurate reports and make the process of dealing with credit information easier and more transparent for consumers,” said Stuart Pratt, President and CEO of the Consumer Data Industry Association, the trade association representing the consumer data industry, including the three national credit reporting agencies.

“While we are pleased that the most recent comprehensive study by the Federal Trade Commission showed that credit reports are materially accurate 98% of the time, we are always looking for ways to improve our procedures, and this consumer assistance plan will allow us to do that. While all three nationwide credit bureaus have been and continue to operate in compliance with the applicable federal and state laws, we have never hesitated to go beyond the letter of the law to voluntarily improve the existing credit reporting environment.”

Some of the benefits consumers will experience include being able to get a free credit report once a year; as well as better ability to dispute information including receiving results of a dispute. The bureaus will also focus on an enhance dispute process for those consumer who are proven victims of identity theft.

Check out the full press release here.