[Federal Register Volume 61, Number 108 (Tuesday, June 4, 1996)]
[Notices]
[Pages 28236-28237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13869]
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DEPARTMENT OF LABOR
Employment and Training Administration
Federal-State Unemployment Compensation Program: Unemployment
Insurance Program Letters Interpreting Federal Unemployment Insurance
Law
The Employment and Training Administration interprets Federal law
requirements pertaining to unemployment compensation as part of its
role in the administration of the Federal-State unemployment
compensation program. These interpretations are issued in Unemployment
Insurance Program Letters (UIPLs) to the State Employment Security
Agencies (SESAs). The UIPL described below is published in the Federal
Register in order to inform the public.
UIPL 23-96
The State agencies which administer the Unemployment Insurance
program collect information concerning the wages paid by employers in
the State. This information is required to be provided by State law, in
accordance with Section 1137(a)(3) of the Social Security Act.
There has been a growing interest by private entities to have
electronic access to the wage data collected by the State in order to
verify income for individuals who apply for loans. This UIPL advises
States to the Department of Labor's interpretation of Federal law in
regard to the disclosure of this information to private entities.
Dated: May 29, 1996.
Timothy M. Barnicle,
Assistant Secretary of Labor.
Directive: Unemployment Insurance Program Letter No. 23-96
To: All State Employment Security Agencies
From: Mary Ann Wyrsch, Director, Unemployment Insurance Service
Subject: Disclosure of Confidential Employment Information to
Private Entities
Rescissions: None
Expiration Date: continuing
1. Purpose. To advise States of the Department of Labor's
(Department) position regarding the disclosure of certain
Unemployment Insurance (UI) information to private entities.
2. Reference. Sections 303(a)(1), 303(a)(8) and 303(f) of the
Social Security Act (SSA); 20 C.F.R. Part 97; Office of Management
and Budget (OMB) Circular No. A-87; ET Handbook No. 336; the Fair
Credit Reporting Act (FCRA), P.L. 91-508, 15 U.S.C. 1681 et seq.
3. Background. Norwest Mortgage, in the form of its subsidiary
VIE (Verification of Income & Employment), has signed an agreement
with the State of Iowa's Department of Employment Services (IDES) to
allow VIE to utilize Iowa wage records in a novel way. It is our
understanding that VIE operates as a credit bureau and provides
electronic access to employment verification information to credit
approving entities covered under the FCRA,\1\ such as mortgage
lenders which subscribe to its service. VIE requires individuals
seeking credit to sign a consent form authorizing release of
information pertaining to them. The current consent form does not,
however, specify that State records will be accessed. VIE receives
requests for verification from its subscribers in the form of the
loan applicant's social security number and State and forwards the
request electronically to the UI agency which accesses its wage
records for the requested information and returns it to VIE. VIE
passes the information back to the requesting subscriber. Only a few
minutes elapse between the subscriber's request and receipt of UI
information via computer. The UI information available to VIE's
subscribers is limited to the employer's name and address, and the
employee's quarterly wages. Although the information exchange was
originally inspired by mortgage lending, it is applicable to all
consumer lending.
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\1\ The FCRA regulates the operations of consumer credit
reporting agencies and users of consumer reports.
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The Department has been told that the funds received from VIE as
payments by the IDES are kept in a separate account and the VIE will
pay for all IDES expenses in setting up the service. IDES will also
receive a percentage of the amount VIE charges its subscribers as a
processing fee for each transaction.
The procedure is marketed as offering benefits to: lenders, by
reducing loan processing costs; loan applicants, by shortening the
verification period from weeks to days; employers, who will no
longer receive employment verification requests; the UI program, by
providing program income; and the economy in general by reducing bad
debt expenses.
The Department has examined the issue of disclosure to private
entities under the circumstances described above. This UIPL is
issued to advise the States that, provided certain conditions are
met, no issues are raised with respect to Federal UI law
requirements when State law permits the information to be released.
Questions exist when a governmental entity requires reports to
be made for a given reason, such as the administration of a State's
UI law or the Income Eligibility and Verification System required by
Section 303(f), SSA, and subsequently releases the information, even
if the release is made with the individual's consent and results in
income to the UI program. Because the information comes from
employers' private records, employers have an interest in its
confidentiality. Therefore, States should seek the input of
employers before entering into an agreement to release such
information to a private entity.
4. Discussion. a. Federal Law Requirements in General. Section
303(a)(1), SSA, has long been interpreted to prohibit disclosure of
claimant and employer UI information. The rationale is that the
disclosure of UI information may deter individuals from filing
claims or employers from filing reports and will impede the proper
and effective administration of the UI program. Individuals/
consumers have an interest in confidentiality. Confidentiality of UI
records avoid publicity about individuals and employers, and
possible notoriety resulting from publicity. Publicity could have
disrupting effects on the operations of the State agency, would be
likely to discourage many individuals from claiming a statutory
entitlement, and may act as a disincentive for employers to
cooperate with the State agency in the administration of the State
UI law.
Further, Section 303(a)(8), SSA, limits grants use to purposes
necessary for the proper and efficient administration of the
Federal-State UI program. Since individuals have an interest in a
release of sensitive
[[Page 28237]]
information about themselves, it would not be proper administration
of the UI program to release such information without the
individual's informed consent. Confidentiality of UI records is,
therefore, an elementary factor necessary in the proper
administration of the UI program, since the release of UI
information without the individual's informed consent would bring
notoriety upon the UI program.
Certain types of disclosure have, however, been permitted.
Disclosure of claimant and employer information to public officials
in the performance of their official duties has been permitted if
the cost of providing the information is paid for by the requesting
public official. States have also been permitted to disclose
information relating to an individual to such individual or the
individual's agent. The Department has now concluded that States may
disclose employment and wage information to a private entity under a
written agreement which (1) requires informed consent from the
individual to whom the information pertains, (2) continues to
safeguard the information once in the hands of the private entity,
and (3) requires the private entity to pay all costs associated with
disclosure.
b. Informed Consent. States choosing to disclose employment and
wage information to credit companies must require the individual to
sign a release. The release must contain the following: (1) a
specific statement indicating that the individual's employment
history will be released, (2) a statement that the release is only
for that particular credit transaction, (3) a clear statement
informing the individual that the credit company may use information
from State governmental files, and (4) a statement indicating all
the parties who may receive the information released. Consent is not
informed if an individual is not told that governmental records may
be released and to whom the information may be provided. States must
assure that all statements or forms provided under the terms of any
agreements require the informed consent of the individual to use the
State's records.
c. Safeguards. States must safeguard the confidentiality of the
UI information once a private entity has been granted access to it.
In cases where the private entity is acting as a gateway and passes
the information along to a subscriber or client, States must obtain
written assurances from the private entity that such subscribers
will also safeguard the confidentiality of the information and that
the information may be used only for the specific credit transaction
authorized by the individual's release.
States must periodically audit a sample of transactions
accessing the wage records to assure that the private entity has on
file a written release authorizing each access and that the
information is not being misused or stored in a database for resale
or other unauthorized purpose to assure that no access is made to
the wage records without authorization. If the private entity acts
as a gateway and audits its subscribers, it will be sufficient for
the State to periodically audit the gateway's audit process. A State
must ensure that any agreement permits it to exercise control over
the UI records even after they are shared with private entities.
The State must be able to terminate the agreement if it
determines that the confidentiality provisions are not adhered to.
The Department also recommends that the agreement contain a definite
expiration date so that the State is assured an opportunity to
periodically evaluate such disclosure.
While it is recognized that no system is foolproof, system
security through increased audits and other means must be such that
any breach will be easily detected. All employees of private
entities must be subject to the same confidentiality requirements--
and State criminal penalties for violation of those requirements--as
are employees of the State UI agency.
d. Income and Costs. Under Section 303(a)(8), SSA, funds
received for the administration of a State's UI program may be used
only as necessary for the ``proper and efficient'' administration of
the State's UI law. Departmental regulations at 29 CFR 97.22(b)
provide that OMB Circular No. A-87 is used to determine whether an
expenditure of granted funds is an allowable cost. Under both the
SSA and the Circular, costs of disclosing information for non-UI
purposes are not allowable because such costs items are not
necessary or reasonable for proper and efficient performance and
administration of the Federal award allocated to carry out the
State's UI program. The OMB Circular also provides at paragraph 20
of Attachment B that certain costs are not allowable under a grant.
These include fines, penalties, damages and other settlements
resulting from violations (or alleged violations) or failure to
comply with law. As a result, the Department recommends that any
agreement with a private entity provide protection to the State for
claims that may arise from any unauthorized use of UI records
obtained under the agreement.
It is the Department's position that income generated by a State
UI agency from the sale of its wage records must be used only as
necessary for the proper and efficient administration of the UI
program pursuant to administrative requirements for grants to the
States. (See 29 CFR 97.25(g)(2) and ET Handbook No. 336, the
``Program and Budget Plan.'') Therefore, States may not use any
money generated by the disclosure authorized under this UIPL for any
non-UI purposes. For example, income from sales may not benefit a
State's general fund or another program.
5. Action Required. State administrators are requested to
provide the above information to appropriate staff.
6. Inquiries. Direct questions to the appropriate Regional
Office.
[FR Doc. 96-13869 Filed 6-3-96; 8:45 am]
BILLING CODE 4510-30-M
