When conducting background checks, it’s important to understand and comply with the Fair Credit Reporting Act (FCRA). Regulated by the Federal Trade Commission (FTC), the FCRA gives you and the applicant a fair method for processing employment screening reports. Businesses and organizations not complying with the FCRA face increased liability and are not protecting consumer’s rights. Compliance with the FCRA allows employers to use consumer reports for hiring new employees and evaluating employees for promotion, reassignment, and retention. The FCRA covers a report if a consumer reporting agency (CRA), a business that assembles such reports for other businesses, prepares the report.

Key Provisions of the FCRA

Step 1: Before You Get a Consumer Report

Before you can order a consumer report for employment purposes, you must notify the individual in writing (in a document consisting solely of this notice) that you are using the report. You must also get the person’s written authorization before you ask a CRA for the report. If you want the authorization to allow you to obtain consumer reports throughout the person’s employment, make sure you say so clearly and conspicuously. It’s a good idea to review applicable laws of your state related to consumer reports. Some states, counties and/or local municipalities restrict the use of consumer reports for employment purposes.

Step 2: Before You Take Adverse Action

If you rely on a consumer report for an “adverse action” (such as denying a job application, reassigning or terminating an employee, or denying a promotion), be aware that:

Prior to taking the adverse action, you must give the individual a pre-adverse action disclosure that includes a copy of the individual’s consumer report and a copy of “A Summary of Your Rights under the Fair Credit Reporting Act” (a document prescribed by the FTC). The CRA that furnishes the individual’s report will give you the summary of consumer rights.

Once you have completed the ‘pre adverse action’ process outlined in the FCRA, the Equal Employment Opportunity Commission (EEOC) also requires that you conduct an individualized assessment prior to taking adverse action. An overview of this assessment procedure, along with the correlating requirements of a written policy on the use of criminal records in employment decisions, can be found on the EEOC website.  

Step 3: After You Have Taken Adverse Action

After you’ve taken adverse action, you must give the individual a post-adverse action notice (orally, in writing, or electronically), that you have taken the adverse action. The notice must include:

the name, address, and phone number of the CRA that supplied the report

a statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give specific reasons for it

a notice of the individual’s right to dispute the accuracy or completeness of any information the agency furnished and his or her right to an additional free consumer report from the agency upon request within 60 days

What’s Your Responsibility?

In any case where information in a consumer report factors into an adverse decision (even if the report information is not a major consideration), it is essential to follow the procedures mandated by the FCRA. You must provide the applicant with a pre-adverse action disclosure before you reject an individual’s application. When you formally deny the applicant, you must provide an adverse action notice. The applicant has the right to receive a copy of their background check from their background screening provider.

In Summary

It’s important to get a return on your investment and mitigate potential legal and financial exposures. There can be serious legal consequences for employers who fail to get an applicant’s permission before requesting a consumer report or fail to provide pre-adverse action disclosures and adverse action notices to unsuccessful job applicants. Your main concern in conducting background checks is to be in compliance with the FCRA and other applicable federal, state and local laws. While the scope and method of employment screening can differ between businesses, the purpose remains the same, to hire the most qualified candidates. It’s always a good idea to consult with an attorney and perform legal research to fully understand your responsibilities under the FCRA and other laws.