[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