Fair Credit Reporting Act (FCRA)

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Detailed Background Check Provider Information

Introduction to FCRA

The Fair Credit Reporting Act (FCRA) is a federal law that regulates the collection, dissemination, and use of consumer information. When an employer conducts a background check using a company that compiles background information – known as Consumer Reporting Agencies (CRAs) – that employer must comply with the FCRA. Initially enacted in 1970 and updated several times, the FCRA is designed to protect the privacy of credit report information and ensure that the information supplied by CRAs is as accurate as possible. Under the FCRA, employers are required to follow specific procedures when they use CRAs to obtain consumer reports or investigative consumer reports on employees or job applicants for “employment purposes.” A complete copy of the FCRA is available for download below:

The FTC & FCRA

The Federal Trade Commission (FTC) – the nation’s consumer protection agency that works to prevent business practices that are anti-competitive or deceptive or unfair to consumers – enforces the FCRA. The FTC works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. In February 2014, the FTC has issued a joint publication with the U.S. Equal Employment Opportunity Commission (EEOC) Background Checks: What Employers Need to Know that explains how employers can comply with both federal nondiscrimination laws and the FCRA. A copy of the publication is available below:

Complying with FCRA

The FCRA governs background screening obtained from CRAs and sets various requirements and rules for background reports, which are also called “consumer reports.” Consumer Reports are broader in scope than just a credit report and include a variety of information about consumers including criminal records, employment and education verifications, reference checks, driving records, civil lawsuits, and credit report information as well as other information. Employers following FCRA procedures protect the privacy rights of individuals. Both employers and CRAs must follow basic steps for FCRA compliance or face substantial legal exposures, including fines, damages, punitive damages, and attorneys fees.

  • (FCRA Section 604): Employers must Certify to Consumer Reporting Agencies that they will follow the FCRA (See Before the Background Check section below).
  • (FCRA Sections 604 and 606): Employers must obtain written Releases and separate Disclosures from subjects of Consumer Reports (See Before the Background Check section below).
  • (FCRA Section 604): If adverse action is intended as a result of Consumer Reports, employers must give a “pre-adverse action” notice to subjects of the reports that contains certain documents (See Adverse Action section below).
  • (FCRA Section 615): If adverse action is taken as a result of Consumer Reports, employers must give an “adverse action” notice to subjects of the reports that informs them the employer has made a final decision, along with other information (See Adverse Action section below).

New CFPB Notices

The Consumer Financial Protection Bureau (CFPB) issued updated FCRA notices that employers and consumer reporting agencies must use when conducting background checks on employees or job applicants. Employees or job applicants undergoing a background check must be given the notice A Summary of Your Rights Under the Fair Credit Reporting Act. Employers conducting background checks for employment purposes must be given the notice NOTICE TO USERS OF CONSUMER REPORTS: OBLIGATIONS OF USERS UNDER THE FCRA. The revised forms, which must be used effective January 1, 2013, are available below:

Before the Background Check

Employers who wish to receive background information on an individual from CRAs must follow additional procedures the FCRA requires before getting a background check report:

  • The subject of background check must be given notice in writing and in a stand-alone format that the information may be used for employment decisions. The notice cannot be in an employment application. Any additional information in the notice should not confuse or detract from the notice.
  • If employers ask CRAs to provide an “investigative report” based on personal interviews concerning the character, general reputation, personal characteristics, and lifestyle of individuals, they must also tell those individuals of their right to a description of the nature and scope of the investigation.
  • Employers must get written permission from individuals to perform the background check. This request for permission can be part of the document used to notify them that the employers will get the report. A request for authorization to get background check reports throughout the employment of individuals must be made clearly and conspicuously.
  • Employers must certify to the CRAs from which they are getting the report that they: notified the applicant and got their permission to get a background report; complied with all of the FCRA requirements; and don’t discriminate against the applicant or employee, or otherwise misuse the information in violation of federal or state equal opportunity laws or regulations.
  • These requirements are outlined in two document that employers should receive from CRAs performing their background checks: A Summary of Your Rights Under the Fair Credit Reporting Act and NOTICE TO USERS OF CONSUMER REPORTS: OBLIGATIONS OF USERS UNDER THE FCRA.

Adverse Action

When taking an “adverse action” such as not hiring an applicant or firing an employee based on information in a consumer report obtained through a CRA, the FCRA has additional requirements under the FCRA that include a “pre-adverse action” notice and an “adverse action” notice:

  • Before employers take an adverse employment action, they must give applicants or employees a “pre-adverse action” notice that includes a copy of the consumer report relied on to make the decision and a copy of A Summary of Your Rights Under the Fair Credit Reporting Act they should have received from CRAs compiling the report. By giving applicants or employees the notice in advance, they have an opportunity to review the report and explain any negative information.
  • After employers take an adverse employment action, the must tell the applicants or employees in an “adverse action” notice (orally, in writing, or electronically): that they were rejected because of information in the report; the name, address, and phone number of the company that sold the report; that the company selling the report didn’t make the hiring decision, and can’t give specific reasons for it; and that they have a right to dispute the accuracy or completeness of the report, and to get an additional free report from the reporting company within 60 days.
  • Employers must wait a “reasonable” amount of time between sending a “pre-adverse action” notice and an “adverse action” notice to give the subjects of the adverse action an opportunity to review the background report and explain any negative information. Just how long employers should wait before denying employment based upon information contained in a Consumer Report is not specified in the FCRA. However, an opinion letter from the FTC suggested a minimum period of five (5) business days would be reasonable period of time before making the final decision, although employers may consider a longer period of time just to be safe.

Disposing of Consumer Report Information

In an effort to protect the privacy of consumer information and reduce the risk of fraud and identity theft, a federal Disposal Rule requires businesses to take appropriate measures to dispose of sensitive information derived from consumer reports. The Disposal Rule applies to consumer reports or information derived from consumer reports. Any business or individual who uses a consumer report for a business purpose is subject to the requirements of the rule, which include the proper disposal of information in consumer reports and disposal practices that are reasonable and appropriate to prevent the unauthorized access to – or use of – information in a consumer report.  The FTC enforces the Disposal Rule and has more information about ths Disposal Rule on the link below:

FACT Act/FACTA

The Fair and Accurate Credit Transactions Act (FACT Act or FACTA) is a federal law passed by the United States Congress in 2003 as an amendment to the FCRA. FACT Act/FACTA allows consumers to request and obtain a free credit report once every twelve months from each of the three nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. In cooperation with the FTC, the three major credit reporting agencies set up the website AnnualCreditReport.com to provide free access to annual credit reports. FACT Act/FACTA also called for the adoption of rules regarding the disposal of sensitive consumer report information mentioned in the section above. More information about FACT Act/FACTA is below:

Background Checks and Additional FCRA Information

More information about the FCRA and background checks is available on the Resources page.

 

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