No matter your industry, thorough pre-employment background checks help you hire qualified, trustworthy employees and protect your business from negligent hiring claims.
However, these checks must comply with the Fair Credit Reporting Act (FCRA) to avoid potential lawsuits.
Partnering with a provider that offers FCRA-compliant background checks, like iprospectcheck, ensures you hire qualified candidates while protecting your company from legal risks.
This guide explains how the FCRA applies to employment background checks and your responsibilities as an employer.
Key Takeaways
- The Fair Credit Reporting Act (FCRA) is a federal law that protects consumer privacy and ensures accuracy and fairness in background checks conducted by third-party agencies.
- Following FCRA rules helps you avoid costly lawsuits, protect your company’s reputation, and demonstrate respect for your applicants’ rights.
- To conduct compliant background checks, you must give applicants written disclosure, obtain their consent, certify to your background check provider that you’ve met all FCRA requirements and will use the information responsibly, issue pre-adverse and adverse action notices when needed, and partner with an experienced FCRA-compliant company like iprospectcheck.
What is the FCRA?
The Fair Credit Reporting Act, or FCRA, is a federal law that Congress passed in 1970.
The FCRA was passed to address a growing credit reporting industry in the United States that compiled “consumer credit reports” and “investigative consumer reports” on individuals.
It was the first federal law to regulate the use of personal information by private businesses.
Since its initial passage, the FCRA has been amended multiple times, expanding its scope.
Background-checking companies and credit bureaus are both considered to be consumer reporting agencies (CRAs) that are covered by the FCRA.
The Federal Trade Commission promulgates regulations under the FCRA and enforces the law’s provisions.
According to the Federal Trade Commission, the FCRA promotes the accuracy, fairness, and privacy of information in the files of consumer reporting agencies.
The FCRA gives several rights to consumers, including the following:
- The right to informed consent before a pre-employment background check is performed.
- The right to review background check information and correct any mistakes.
- The right to be informed when information from a pre-employment background check about them is used to make decisions that adversely affect them.
- The right to appeal adverse decisions made based on the data in their pre-employment background checks when they believe the information used to make the decision is inaccurate.
For positions with annual salaries under $75,000, background check reports are generally restricted from including:
- Arrests more than seven years old that did not lead to a conviction
- Paid tax liens
- Civil lawsuits or judgments
- Chapter 13 bankruptcies (note: Chapter 7 bankruptcies may remain on record for up to 10 years)
- Debts or accounts that have been sent to collections
When you choose a reputable FCRA-compliant background check provider like iprospectcheck, you can be confident that our methods of collecting, storing, and disposing of the personal information of your job applicants will fully comply with the FCRA.
Why Do Employers Need to Be FCRA-Compliant?
Violating FCRA regulations can result in substantial consequences.
Under the law, employers that obtain background checks through third parties must strictly adhere to specific steps during the initial hiring and onboarding process.
Federal lawsuits are frequently filed against employers based on their alleged failures to follow the requirements of the FCRA.
According to data from The Society for Human Resources Management, the number of FCRA claims has sharply increased since 2009. As of Oct. 2019, 4,163 FCRA lawsuits had been filed during the year against employers for alleged violations of the FCRA.
When employers are forced to undergo FCRA litigation, they lose money through legal fees, time losses, reputational damage, settlements, and interruptions in their business operations.
The following examples of financial settlements in FCRA violation cases should give you an idea of just how costly this type of litigation can be:
- June 2019 – 7-Eleven paid $1.9 million to settle FCRA claims.
- 2019 – Delta Airlines paid $2.3 million to settle FCRA claims.
- 2018 – Omnicare paid $1.3 million to settle FCRA claims.
- July 2018 – PepsiCo subsidiary paid $1.2 million to settle FCRA claims.
- April 2018 – Frito-Lay paid $2.4 million to settle FCRA claims.
FCRA lawsuits can be very expensive because of the allowed remedies for plaintiffs.
When plaintiffs succeed in FCRA lawsuits, they can seek actual and punitive damages, legal costs, and attorneys’ fees.
Since many employers use the same process and forms for all their pre-employment background checks, an individual employer may have multiple violations.
This means that many of these types of cases are filed as class actions, greatly driving up the potential losses for employers.
Aside from protection from liability, another reason to conduct FCRA-compliant background checks is to create a positive view of the employer by the employee or candidate.
When you implement an FCRA-compliant screening process, it shows that you are serious about your obligations and that you value your applicants, their privacy, and their rights.
Know Before You Hire
How to Conduct an FCRA-Compliant Background Check
Under the FCRA, employers that rely on a third-party background check company, such as iprospectcheck, to conduct employment background checks must comply with several rules during the process.
1. Provide Disclosure that a Background Check is Required
Employers must give employees and applicants written notice of their intent to complete background checks and obtain their written authorization to get the applicants’ or employees’ records.
This notice must be provided as a standalone document.
If the background check will also include an investigative report through which interviews will be conducted to gather information about the applicant’s personal characteristics, reputation, lifestyle, and character, you must also give a written notice about the investigative report to the applicant.
This notice must include a statement that the applicant can request disclosure of the extent of the investigative report and his or her right to ask for additional disclosures.
2. Obtain Consent to Perform Background Check
After the applicant has received the written notice and has reviewed it, you will then need to obtain his or her written, signed consent to complete the background check.
This signed consent serves as an acknowledgment by the applicant that the background check will occur and that he or she consents to it.
3. Inform the CRA of Obtained Consent
Next, you will need to give a certification to the CRA (in this case iprospectcheck) that you have complied with the FCRA’s requirements and have obtained the applicant’s written consent to perform the background check.
You must also certify that you will not misuse any information you receive in the report or unlawfully discriminate against the applicant.
Once you receive an applicant’s background check report from iprospectcheck, you will need to take a few extra steps if you decide to make an adverse decision based on the information you receive.
4. Provide Applicant with a Pre-Adverse Action Notice
You must provide the applicant with a pre-adverse action notice together with a copy of the background check report.
You must also give the applicant a copy of a “Summary of Your Rights Under the Fair Credit Reporting Act” from the Federal Trade Commission.
The applicant must then be given “a reasonable amount of time” (widely interpreted as at least five business days) to dispute any of the information in the background check report that you are relying on before you can make a final employment decision.
After this process, you can make your final decision.
5. Provide Applicant with a Final Notice of Adverse Action
If you decide to make an adverse decision based on information from the background check report, you will need to give the applicant a final notice of the adverse action.
This notice must include the name, phone number, and address of the CRA that completed the report.
It should also state that the CRA that conducted the report is not the party that decided to make the unfavorable hiring decision, and thus cannot give a reason for why the decision was made.
Finally, the final adverse action notice should advise the applicant that he or she has the right to dispute or correct any inaccurate information that was furnished by the CRA and to obtain a free copy of the report within 60 days.
A qualified CRA like iprospectcheck offers background checks that comply with all of the requirements of the FCRA as well as the laws and regulations of individual states.
Starting the process by choosing an FCRA-compliant background check company like iprospectcheck can help you to streamline the process and ensure that you are fully complying with the law during every step.
How to Avoid FCRA Violations
Avoiding FCRA violations is not difficult when you work with an FCRA-compliant background check company like iprospectcheck and have the relevant procedures and policies in place at your company.
Any policies and procedures you have should be reviewed by your Human Resources department and legal counsel before you implement them.
Follow these tips to help you avoid violating the FCRA.
1. Always provide FRCA-compliant disclosures and obtain written consent.
Before conducting a pre-employment background check, make sure that you give the applicant a written disclosure and obtain his or her written consent to complete the background check.
Make sure the disclosure is given as a separate, stand-alone document.
2. Do not include liability waivers or NDAs in the same FCRA consent form or disclosure.
You are not allowed to include anything else in this document, including NDAs or liability waivers.
3. If you want to make an unfavorable employment decision based on information in the background report, give a pre-adverse action notice to the applicant.
The applicant must be given a notice of your intent to make an adverse decision and be provided with a copy of the background check report.
He or she must then be allowed to take five days to challenge the information and correct it.
You must also send a copy of the applicant’s summary of rights under the FCRA.
4. If you make a final adverse decision, send a notice of adverse action to the applicant.
If you decide to finalize your adverse employment decision, make sure to send the applicant a notice of the adverse decision along with the contact information for the CRA that supplied the report.
This notice should inform the applicant that the CRA did not make the decision and cannot answer questions about it.
It should also tell the applicant that he or she has the right to dispute the information in the report from the CRA and can ask the CRA for a free report within 60 days of the adverse action notice.
It is best for you to work with iprospectcheck to conduct your pre-employment background checks.
We are FCRA-compliant and can help you to make certain that the reports you receive comply with all federal and state laws and regulations, including the FCRA.
iprospectcheck: Your Trusted Partner for Fast, Accurate, Compliant Pre-Employment Background Checks
Completing FCRA-compliant pre-employment background checks should be a routine part of your company’s hiring process.
When you work with iprospectcheck, you can be confident in knowing that the information you receive follows all of the relevant state and federal laws.
Our professional staff members are fully trained and understand how to complete comprehensive background checks that are FCRA-compliant and provide you with the information that you need to make informed hiring decisions.
We use cutting-edge technology and have access to all of the necessary resources to find the types of information you request.
To learn more about our pre-employment background checks and our compliance with the FCRA and other laws, contact iprospectcheck today to schedule a free consultation.
DISCLAIMER: The resources provided here are for educational purposes only and do not constitute legal advice. Consult your counsel if you have legal questions related to your specific practices and compliance with applicable laws.
FAQs
Does the FCRA apply to all employers or only certain industries?
The FCRA applies to all employers in the U.S. that use third-party background check providers, regardless of industry or company size.
How long does it take to complete an FCRA-compliant background check?
Processing times vary depending on the scope of the search, but most FCRA-compliant background checks are completed within one to three business days.
Are social media checks covered under the FCRA?
If a third-party company conducts social media screening, the results are considered a consumer report and are therefore subject to FCRA compliance requirements.
What happens if a candidate refuses to consent to a background check?
Employers are legally permitted to withdraw a conditional job offer if an applicant declines to undergo a pre-employment background check.
