Over the last year, I’ve had many conversations with independent recruiting and staffing firms regarding the running of background checks for their clients. If you, the recruiter, are running the background check per your client’s request, please familiarize yourself with three federal laws — the Equal Credit Opportunity Act (ECOA), as implemented by Regulation B, the Consumer Financial Protection Board (“CFPB”) rules and the Federal Fair Credit Reporting Act (FCRA) which reflect Congress’s determination that consumers applying for a job should receive a notice for adverse actions taken with respect to employment decisions, and in certain other circumstances.

Federal law states that the “end user” of a background report entails the “hiring party” – the party that is conducting the hiring and making the hiring decision as to whether to hire the candidate or not. When these lines become blurred, this opens up recruiters to class action lawsuits, which have tripled this year. Because back office organizations and recruiters do not regularly constitute the “end user”, it’s important you understand the law regarding your recruiting firm, your back office partner and your clients role in the background screening process to mitigate potential lawsuits.

The Fair Credit Reporting Act (FCRA) is designed to regulate the use of consumer report information and other background information received about individuals from Consumer Reporting Agencies. The FCRA applies to a number of different types of entities including furnishers of information, end-users, resellers, and the individuals who are the subject of the consumer report, namely, consumers. End-users are the individuals or entities that procure consumer reports from a Consumer Reporting Agency (CRA) to use for business or employment purposes. For example, a company that orders background checks about job applicants is considered an end-user of consumer reports.

The FCRA defines two types of reports compiled by CRAs into “consumer reports” or “investigative consumer reports.” Consumer Reports are written, oral or other communications of a consumer reporting agency which bear upon a consumer’s eligibility for employment purposes or for obtaining credit or a loan. These reports may include but are not limited to credit history, as well as driving records, criminal records, etc. Investigative Consumer Reports include information on a consumer’s character, general reputation, personal characteristics or mode of living obtained through personal interviews with neighbors, friends or associates of the consumer or acquaintances of the consumer. The most common type of investigative consumer reports are education or employment reference checks.

To establish your position to the above federal laws, we recommend you research and/or consult legal counsel to insure proper compliance regarding your recruiting/staffing firm and your back office partner’s legal role in the background screening process. Compliance with the requirements of both Regulation B and the FCRA involving adverse action decisions is important to provide applicants timely and relevant information promised to candidates by law.  

Editor's Note

Robert Brennan has over 20 years of executive management experience in the recruiting and staffing industry and has collaborated with over 500 independent recruiting and staffing owners providing comprehensive back office solutions as well as business growth strategies. Robert is a partner with ARG Back Office Services based in St. Petersburg Florida.