The FCRA and Your Background Screening Program: What You Should Know

By Todd R. Carpenter

When hiring employees, you want as much information as possible to make smart decisions. As part of your screening program, it's imperative to understand the Fair Credit Reporting Act (FCRA). Here's why: If background checks aren't conducted within the laws that govern employment screening, applicants and employees can enforce their privacy rights through litigation.

Overview
All reports that employers compile and receive are subject to the FCRA. State law may also apply. Before conducting a background check, you must obtain the applicant's written permission using an Authorization and Release Form. Before you determine not to hire or promote the applicant because of information in the report, you must provide the applicant with a copy of the report and "A Summary of Your Rights Under the Fair Credit Reporting Act" prescribed by the Federal Trade Commission. Give the applicant a reasonable period of time to dispute any ­inaccu­racies in the report. If you decide not to hire or promote someone based on information in the report, you must provide the person with an Adverse Action Notice and inform the individual of his or her rights under the FCRA to seek correction of any inaccuracies in the report.

FCRA Employment Guidelines
Compliance with the FCRA allows employers to use consumer reports for hiring purposes and evaluating employees for promotion, reassignment, and retention. The FCRA covers a report if a consumer reporting agency (CRA) — a business that assembles information on consumers for other businesses — prepares the report.

Key Provisions of the FCRA for Employers
Step 1: Written Notice and Authorization
Before ordering a consumer report for employment purposes, you must notify the individual in writing (in a document consisting solely of this notice) that you are obtaining the report. You can include additional information in this notice:

  • The individual has the right to know what types of reports are being accessed.
  • The individual's written authorization is required to procure a consumer report.
  • The individual has the right, upon receipt of a written request, to receive a complete and accurate disclosure of the nature and scope of the investigation.
  • The individual is entitled to a statement of his or her rights.

Separately, you must also obtain the person's written authorization before you ask a CRA for the report. That authorization may be part of the written disclosure.

Step 2: Pre–Adverse Action
Before taking adverse action, you must give the individual a pre–adverse action disclosure that includes a copy of his or her consumer report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act." The CRA that furnishes the report will give you the summary of consumer rights. You must then give the consumer a reasonable period of time (for example, five days) before taking final action so as to give the consumer a chance to dispute the accuracy of any information in the report that may have influenced your tentative decision.

Step 3: Post–Adverse Action
After taking adverse action, you must notify the individual (orally, in writing, or electronically) that you have taken adverse action. The notice must include:

  • the name, address, and phone number of the CRA that supplied the report
  • a statement that the CRA supplying 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

Key Provisions of the FCRA Regarding Applicants' Rights
A major component of the FCRA is the rights of the applicant. Any termination decisions or decisions that deny employment or promotion of an employee fall under the FCRA adverse action process if information in a consumer report was a factor in the decision. When relying on a consumer report for adverse action (for example, denying employment), you must follow certain FCRA procedures.

For example, you've made a decision not to hire an applicant based in part on information contained in his or her consumer report. Before taking adverse action, you must:

  • provide the applicant with a pre–adverse action disclosure and a copy of the report
  • supply the individual with a written description of "A Summary of Your Rights Under the Fair Credit Reporting Act." (Prescribed by the FTC, the document contains an overview of the applicant's rights. The CRA can provide this to you.)

After taking adverse action, you must do the following:

  • Notify the individual (orally, in writing, or electronically) of your decision not to extend a job offer; provide a statement indicating that the CRA did not make the adverse action determination; and supply the name, address, and telephone number of the CRA that provided the report.
  • Notify the individual about his or her right to dispute the information contained in the report and the right to an additional free copy of the report within 60 days of notification of the adverse decision.

If the individual believes an item in the report is incorrect or unrecognizable, he or she is entitled to request a reinvestigation into the disputed item. Keep in mind that a CRA is required to remove unproven or "false positive" information from its files typically within 30 days of a dispute. However, CRAs don't have to remove any information that is verified as accurate. Any adverse information that's correct can remain on an individual's report as long as governing laws permit. If a change to the individual's report occurs (after information is confirmed to be accurate and complete), the CRA is required to provide the applicant written notice of the change and must supply the information source name, address, and phone number.

In Summary
The main concern when conducting background checks is to comply with the Fair Credit Reporting Act and other federal, state, and local laws. Employers that fail to comply with FCRA rules and regulations can be liable to an applicant or employee for damages, costs of a lawsuit, and attorney fees. Punitive damages and criminal penalties can also result. While the scope and method of employment screening may differ among businesses, the purpose remains the same: to hire the most qualified candidates. Remember, it's always a good practice to consult with an attorney to understand fully your responsibilities under the FCRA and other laws.

Understanding the Fair Credit Reporting Act

FCRA Compliance Required by Law
Regulated by the FTC, the FCRA gives the employer and applicant a fair method for processing employment screening reports. Organizations that don't comply with the FCRA aren't protecting consumers' rights and face increased liability.

FCRA Sections 604, 606, 615
These sections outline what your responsibilities are when using consumer reports for employment purposes.

Employer Responsibility

  • When any information in a consumer report factors into an adverse decision (even if report information is not a major consideration), follow FCRA procedures.
  • Provide the applicant with a pre–adverse action disclosure prior to rejecting his or her application.
  • When formally denying the applicant, supply an adverse action notice.
  • The applicant has the right to receive a copy of the background check from the background screening provider.

Todd R. Carpenter is president of Intellicorp Records, Inc. IntelliCorp is a full-service background screening company providing service and guidance to more than 20,000 customers across the United States.