In 1970, the Fair Credit Reporting Act (FCRA) took effect to ensure “the accuracy, fairness, and privacy of information in the files of consumer reporting agencies.” The Act gives consumers many rights, protects employees and job applicants, and regulates employers. As such, employers must ensure they comply with the FCRA.

Many people consider consumer reports as credit reports, but many other types exist. The Consumer Financial Protection Bureau (CFPB) describes a consumer report as “any written, oral, or other communication of any information by a consumer reporting agency.” However, the Bureau further specified that the report must concern the following to comply with the FCRA:

• A consumer’s creditworthiness,
• Credit standing,
• Credit capacity,
• Character,
• General reputation,
• Personal characteristics or
• Mode of living

Furthermore, the CFPB cites specific uses when requesting or collecting this information. In some form, either entirely or partially, it must help determine the consumer’s eligibility in several ways. These criteria include the following:

• Credit or insurance to be used primarily for personal, family, or household purposes;
• Employment purposes; or
• Any other purpose authorized under Section 604 (15 U.S.C. 1681b).”

Employers must comply with the FCRA when conducting background screening on employees.

FCRA Obligations for Employer

Here are some requirements employers must comply with when conducting a background check or taking adverse notice.

Disclosure

Employers must provide a disclosure before conducting a background check on an applicant or employee. The FCRA requires them to provide a written, stand-alone page stating the intention to acquire a consumer report. It must also clearly show that they may use it for employment-related decisions. The FCRA also requires the employer to receive the individual’s written consent to request or obtain the information.

Employers may obtain a background check once the applicant receives and signs the disclosure. This page can include minor additional information, such as “a brief description of the nature of consumer reports.” However, the Federal Trade Commission (FTC) advised employers not to do the following when adding to the disclosure:

• “Don’t include language that claims to release you from liability for conducting, obtaining, or using the background screening report.
• Don’t include a certification by the prospective employee that all information in his or her job application is accurate.
• Delete any wording that purports to require the prospective employee to acknowledge that your hiring decisions are based on legitimate, non-discriminatory reasons.
• Get rid of overly broad authorizations that permit the release of information that the FCRA doesn’t allow to be included in a background screening report – for example, bankruptcies that are more than ten years old.”

Notices

Employers intending to take adverse action must follow a specific process described by the FCRA. Adverse action includes refusing to hire an applicant or terminating a worker’s employment. 

This process requires employers to notify the affected individual. This notification must include a copy of the consumer report used when making the decision. In addition, the individual must receive a “Summary of Consumer Rights” to ensure they understand the significance of this report and what they can do about the situation.

The employer must provide a reasonable time for the applicant or employee to respond. However, the FCRA does not specify a timeframe that employers must provide. According to the FTC’s Advisory Opinions, employers should allow at least five business days for applicants or employees to respond. This minimum can help mitigate potential lawsuits concerning this issue.

Employers taking adverse action must supply the individual with a final notice. It must include the consumer reporting company’s name, address, and phone number that provided the report. It must also contain a statement explaining that “the consumer reporting agency did not make the decision to take the adverse action and is unable to provide to the consumer the specific reasons why the adverse action was taken.” Finally, the person may receive a free copy of the report and dispute the accuracy and completeness if desired.

The FCRA’s disclosure requirements can lead to compliance issues. As such, the FTC offers adverse action forms that employers may use. However, the FTC’s form is optional. Employers may use their own, provided they include all required information.

Avoiding FCRA Violations

Failure to comply with the FCRA can lead to significant fines, penalties, or expensive lawsuits. Here are several steps employers can take to avoid FCRA violations:

1. Provide the required disclosures. Ensure it states that you will obtain a background check and includes a summary of their rights if you use a third-party background check company.
2. Do not include extraneous information. Avoid unnecessary details when stating that you will obtain a background check; irrelevant information has sometimes lead to lawsuits.
3. Obtain written consent for background checks. You must obtain written permission from an applicant or employee before acquiring a background check.
4. Supply a pre-adverse action notice if you intend to take an adverse employment action based on a background check. You must supply a copy of the background check report you used in making your decision with this report, as well as a “Summary of Consumer Rights Form.”
5. Provide a notice of adverse action before taking final adverse action. It must inform the individual that the CRA did not make the decision. It should also explain how they can obtain a free report from the CRA within 60 days of the adverse decision.

Conclusion

Businesses must comply with the FCRA, as violations have proven very costly. Fines for each violation can be from $100 to $1,000. In addition, a court can impose actual damages, punitive damages, and legal fees. The best way to ensure hiring compliance is to work with an experienced background check company. The right partner can help your company comply with the FCRA and other employment laws.

 

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