The Fair Credit Reporting Act (FCRA) & Background Checks

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  • The Fair Credit Reporting Act (FCRA) & Background Checks
7 Jun, 2024
Daniel Cohen
4 min
229
lawyer with a pen in hand signing document

The laws that strive to make credit reports safe, fair, and accurate also apply to background checks. Know your rights!

Whether you’re an employer conducting background checks, a company running reports, or an applicant undergoing one, knowing your rights and obligations under the Fair Credit Reporting Act (FCRA) is crucial. The FCRA dictates how background information can be collected and reported, and gives you protections if your rights are violated. Learn more!

Background checks have become and will likely remain a standard and expected part of the hiring process. The job market is competitive so employers have the leverage to confirm the truth of what job applicants say and the leverage to omit anyone with a red flag from consideration. Additionally, increased digitization and improved cyber-infrastructure means data, including personal data, is more readily available and cheaper than ever before. Furthermore, the stakes are higher for employers than ever before. Hiring one “bad apple” can have devastating consequences for a company’s operations and reputation. 

Background checks provide an easy and relatively quick way for employers to protect themselves and take one extra step in hiring someone reliable. An employer, or potential employer, uses background checks to:

  • Verify the information that the job applicant offers them. 
  • Look for anything to suggest the job applicant is less than reliable. 
  • Identify anything to suggest the applicant might pose a threat to the employer or its other employees. 

That’s fair: employers just want to make an informed decision based on accurate data. However, with this practice comes a responsibility to respect and protect the rights of applicants and employees. 

The Fair Credit Reporting Act (FCRA) provides the legal framework for how employers should conduct these background checks. 

The background check attorneys at Consumer Attorneys are dedicated to protecting your rights. The FCRA aims to balance the needs of employers with the privacy and accuracy rights of individuals. This is especially true regarding background checks conducted by potential or current employers, as many people do not know that the FCRA not only applies to background checks but also imposes crucial requirements and gives consumers and all employees or potential employees powerful rights.  

Everyone - employees and employers - needs to understand their rights and obligations under the FCRA - whether you are an employer conducting background checks or an applicant on the cusp or in the midst of one. 

The FCRA dictates how background companies should collect and use information and provides specific protections and avenues for recourse if anyone violates those rights. Knowing these rights can help job applicants ensure that they are treated fairly and that any decisions about their employment are based on accurate and complete information.

On the other hand, employers must navigate the complex requirements of the FCRA to avoid legal pitfalls and ensure that their hiring practices are fair and compliant. Any failure to follow FCRA guidelines can lead to significant legal and financial repercussions and damage to an organization's reputation. 

Therefore, it is in the best interest of both parties to fully understand and comply with the provisions of this law.  This article provides an overview of the FCRA, its importance for employers, how to conduct an FCRA-compliant background check, employer responsibilities, the consequences of non-compliance, and what to do if your employer violates the FCRA.

What is the FCRA?

The FCRA is a federal law enacted in 1970 to promote the accuracy, fairness, and privacy of information in files maintained by consumer reporting agencies (CRAs). The FCRA governs how CRAs and background check companies collect, use, and share consumer information, with whom they can share it, and how they can share it. The FCRA is crucial for protecting consumer rights and ensuring that the information used in credit reports and background checks is accurate and fair.

The FCRA covers a broad range of information, including credit history, criminal records, medical screening, and other personal data. When it comes to employment, the FCRA sets specific guidelines for conducting background checks to ensure that employers and potential employers treat job applicants and employees fairly. 

The legal framework governing background checks also understands that employers must keep their workplaces safe. Employers need to know that when they hire someone, they are hiring someone who is reliable and trustworthy and not a threat to the other employees, the employer’s reputation, or the employer’s business. So it provides a clear outline for how to do it. 

What is FCRA Compliance and Why Do Employers Need to Be FCRA-Compliant?

FCRA compliance means adhering to all of the rules and regulations outlined in the Fair Credit Reporting Act. Particle compliance is non-compliance. 

For employers, this means following specific procedures when requesting and using background checks for employment purposes. An FCRA-compliant background check safeguards the rights of the screened individual. It safeguards the employer by establishing a paper trail to prove that the employer received all necessary disclosures and authorizations. 

Employers need to be FCRA-compliant for several reasons. 

ComplianceNon-Compliance
It’s the law. Avoid legal consequences including fines and lawsuits.Legal consequences: fines and lawsuits.
Applicants appreciate your respect for their rights. Generate goodwill and ensure fair treatment.Reputational damage and stockholder dissatisfaction.
Avoid litigation. Save on legal costs and avoid reputational damage.Expensive legal battles.
Building Trust. Foster a positive work environment and enhance reputation.Loss of trust and a hostile work environment.

Employer Responsibilities Before Requesting a Background Check

Employers have several responsibilities before they even request a background check. Here’s what employers should do to comply with the FCRA:

  • Provide clear disclosures. Employers must clearly and conspicuously inform applicants or employees that a background check will be conducted in a standalone document.
  • Obtain written authorization. Employers must obtain written authorization from the individual before conducting the background check. This ensures that the individual is aware of and consents to the screening process.
  • Certify compliance with the background check provider. Employers must certify to the background check provider that they have obtained the necessary authorization, will comply with FCRA requirements, and will not misuse the information obtained.
  • ONLY use FCRA-Compliant background check providers. They may be a little more expensive, but employers should select background check providers that comply with FCRA regulations to ensure the accuracy and legality of the information collected.

How to Conduct an FCRA-Compliant Background Check

Conducting an FCRA-compliant background check involves several steps, put in place to protect the rights of the screened individual. Here’s how employers can assure people their background checks comply with FCRA requirements. 

StepDescription

Step 1

Provide a Clear Disclosure

Before conducting a background check, employers must give the applicant or employee a clear and conspicuous written disclosure. This disclosure must inform the individual that the employer is doing a background check and be a standalone document, separate from the employment application or other paperwork.

Step 2

Obtain Written Authorization

Employers must obtain written authorization from the applicant or employee before they conduct the background check. They can include the authorization with the disclosure. The person being screened must sign the authorization.

Step 3

Use a Reputable, FCRA-Compliant Background Check Provider

Employers should use a reputable, FCRA-compliant background check provider. This ensures that the information they collect is accurate and their processes adhere to FCRA guidelines.

Step 4

Review the Background Check Report

Once the background check is complete, employers should review the report carefully. If any adverse information may impact the hiring decision, the employer must follow specific procedures before taking that adverse action.

Step 5

Pre-Adverse Action Notice

If the employer decides to take adverse action based on the background check (e.g., not hiring the applicant), they must provide the individual with a pre-adverse action notice. This notice should include a copy of the background check report and a summary of the individual’s rights under the FCRA.

Step 6

Allow Time for Response

The employer must give the applicant or employee reasonable time to review the report and dispute any inaccurate or incomplete information. This period typically ranges from five to ten business days.

Step 7

Adverse Action Notice

If, after considering any disputes, the employer still decides to take adverse action, they must provide the individual with an adverse action notice. This notice should include: 

  • The background check company’s name, address, and phone number.
  • A statement that the background check company did not make the adverse decision and cannot explain why it was made.
  • A notice of the individual’s right to dispute the report's accuracy or completeness and request a free copy of the report within 60 days.

What are the Consequences of FCRA Non-Compliance?

Non-compliance with the FCRA can result in severe consequences for employers, including:

  1. Lawsuits, Lawsuits, and more Lawsuits. Employers who fail to comply with FCRA requirements can (and will) face lawsuits from those job applicants or employees affected by those violations. These lawsuits can result in significant legal penalties, including statutory damages ranging from $100 to $1,000 per violation, actual damages, punitive damages, and attorney’s fees.
  2. Reputational damage. Non-compliance can really hurt an employer’s reputation and make it challenging to attract and retain top talent. It can also damage relationships with current employees and stakeholders.
  3. Operational disruptions. Legal battles and the resulting penalties can and will create significant operational disruptions and divert resources and attention away from the core business.
  4. Government enforcement actions. Federal and state agencies may take enforcement actions against non-compliant employers, which can result in additional fines and sanctions.

What to Do If Your Employer Violates the FCRA

If you believe your employer has violated the FCRA, there are several steps you should take to protect your rights:

StepDescription
Document the violationKeep detailed records of the violation, including copies of any disclosures, authorizations, background check reports, and correspondence with your employer.
Dispute inaccurate informationIf the background check contains inaccurate or incomplete information, dispute it with the background check provider. The FCRA requires the provider to investigate and correct any errors.
Seek legal adviceConsult with a consumer protection attorney who specializes in FCRA violations. The experienced consumer lawyers at Consumer Attorneys will review and evaluate your case, help you understand your rights, and determine the best course of action. No “one-size-fits-all” solution to an employer violating the Fair Credit Reporting Act exists. Everyone’s circumstances are different, require a unique and tailored analysis, warrant a unique and tailored response, and prompt a tailored legal strategy.
File a complaint or complaintsYour attorney may suggest you file a complaint with the Consumer Financial Protection Bureau (CFPB) or the Federal Trade Commission (FTC). These agencies can investigate and take action against non-compliant employers.
Consider legal actionIf the violation has caused you harm, such as loss of employment or damage to your reputation, you may have grounds for a lawsuit. Your attorney can help you file a lawsuit and seek compensation for your damages. One of the benefits of contacting an attorney early in the background check process is they can help you prepare for a lawsuit and protect your rights, so when it’s time to file a lawsuit, you’re ready to go.

Conclusion

The Fair Credit Reporting Act (FCRA) protects job applicants and employees by mandating that employers conduct background checks fairly, responsibly, and accurately. Employers must comply with FCRA requirements to avoid legal consequences and protect individuals' rights. 

If you believe your rights under the FCRA have been violated, taking action to protect yourself is essential.

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Daniel Cohen is the Founding Partner of Consumer Attorneys
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Daniel Cohen
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Daniel Cohen is the Founder of Consumer Attorneys. Daniel manages the firm’s branding, marketing, client intake and business development efforts. Since 2017, he is a member of the National Association of Consumer Advocates and the National Consumer Law Center. Mr. Cohen is a nationally-recognized practitioner of consumer protection law. He has a wealth of proven legal experience in the US in: collective claims, representing visually impaired people who believe their rights under the Americans with Disabilities Act have been violated in both the physical and digital environments, corporate governance and dispute resolution. Read more

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