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Fair Credit Reporting Act and Employment Background Checks [2023]

Employment background check

In this article, we will look at the different requirements that the Fair Credit Reporting Act (FCRA) imposes on employers who use background checks during the hiring process.

We’ll also look at the trend of litigation surrounding employment background checks that take place without proper compliance procedures in place.

What is the Fair Credit Reporting Act?

While background checks can be a valuable part of hiring, using them requires complying with FCRA guidelines. Here’s how the Federal Trade Commission defines the FCRA:

The federal Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness, and privacy of information in the files of consumer reporting agencies. There are many types of consumer reporting agencies, including credit bureaus and specialty agencies (such as agencies that sell information about check writing histories, medical records, and rental history records).

This organizing body places laws on pre-employment background checks and defines how companies can and cannot use background checks. The FCRA also specifies what must happen if a background check uncovers conditions that render a candidate ill-suited for employment.

When it comes to pre-employment background checks, the FCRA seeks to promote fairness, accuracy, and transparency for both the applicant and the employer.

FCRA and Employment Background Checks

There are rules an employer must follow when considering taking adverse action against a candidate based even partly on information contained in an employment background check.

The FCRA and “Fair Chance” regulations issue these rules. Today, companies that fail to follow proper adverse action procedures become top targets for class action litigation.

The Pre-adverse Action notification requires the employer to do the following before making a final decision:

  1. Provide notice to the applicant that the pre-employment background check contains information that potentially disqualifies the candidate from the position in question.
  2. Provide the applicant a copy of the report.
  3. Provide the applicant a copy of the “Summary of Consumer Rights under the FCRA.”
  4. Along with the Pre-Adverse action notification, employers must provide the applicant with the name, address, and telephone number of the consumer reporting agency that procured the background report. Employers must also provide a statement notifying the candidate that the consumer reporting agency did not make the decision to take adverse action and is unable to give reasons or information about the act itself.

Candidate Rights Under FCRA

The candidate may dispute the information provided by the consumer reporting agency. This action allows for the correction of misreported, outdated, or otherwise incorrect data.

The Adverse Action notification can begin after a reasonable amount of time has passed from the initial notification, and must:

  1. Be accompanied by a copy of the background report.
  2. Include a copy of the “Summary of Your Rights under the FCRA.”
  3. Must include a notification that the candidate is no longer eligible for potential employment based on the results of employment background checks.

Under FCRA, a candidate has legal rights to all records in his or her name. By exercising these rights, the candidate can ask for full disclosure of their files, including credit scores and background checks.

Once the company discloses records, the candidate can dispute or petition to correct inaccuracies. If the candidate believes a company has violated his or her rights during the background check process, they have the right to seek damages from the offending company.

How Employers Can Protect Themselves From Litigation

Employers that fall out of compliance with FCRA laws may find themselves at risk of litigation.

For example, employers cannot use background checks to participate in hiring discrimination (i.e. making a hiring decision based on race, national origin, sex, religion, disability, genetic information, or age). Applicants who believe their background checks supported discriminatory behavior have the right to contact the Equal Employment Opportunity Commission.

Fortunately, ensuring that your company is completely FCRA-compliant can be accomplished by working closely with a quality employment screening provider (consumer reporting agency) and competent legal counsel.

Many consumer reporting agencies have comprehensive and tested programs already in place to accommodate their clients’ adverse action procedures.

If you want to make staying in compliance even easier, contact iprospectcheck today. We provide fast, accurate and compliant background screening solutions to help you make the right hiring decisions.

DISCLAIMER: The resources provided here are for educational purposes only and do not constitute legal advice. Consult your own counsel if you have legal questions related to your specific practices and compliance with applicable laws.

Know Before You Hire

About the Author
Matthew J. Rodgers

Matthew J. Rodgers

Matthew J. Rodgers is a highly accomplished business executive with over 30 years of experience providing strategic vision and leadership to companies ranging from the fortune 500 to iprospectcheck, a company which he co-founded over a decade ago. Matthew is a valued consultant who is dedicated to helping companies create and implement efficient, cost effective and compliant employment screening programs. Matt has been a member of the Professional Background Screeners Association since 2009 . When not focused on iprospectcheck, he can be found spending time with his family, fly fishing, or occasionally running the wild rivers of the American west. A lifetime member of American Whitewater, Matt is passionate about protecting and restoring America’s whitewater rivers.