A Quick Guide to FCRA Compliance in Background Checks

The Fair Credit Reporting Act (FCRA) affects employers even if they aren’t part of a credit-reporting agency. Specifically, the FCRA addresses how employers conduct background checks and protect the information collected by agencies like credit bureaus, as well as companies that conduct pre-employment or tenant background checks, often referred to as Consumer Report Agencies (CRA). It also indicates legal obligations employers must follow regarding the information collected on employees or potential job candidates when using a background screening company. There’s more to it than that—much more—but for now, here’s a quick guide to FCRA compliance in background checks.

Why FCRA?

If you use or plan to use background checks to screen current and potential employees, you are obligated to follow the FCRA’s requirements for using any information reported by the third-party background check companies you hire. This protects the rights and privacy of the individuals under investigation.

Despite the title, the FCRA goes beyond investigating credit histories. It also addresses information gathered about a person’s character, way of living, and reputation. Such checks are covered by the FCRA because reports are intended for employment purposes.

The Perils of Noncompliance

The consequences for noncompliance vary, and willful or negligent violations are penalized in several ways. Liability for damages includes losses experienced by the applicant, fines, and the claimant’s expenses, such as court costs and attorney fees. The amounts and punishments differ, though some may be predetermined.

What You Must Do

If the company decides not to hire the candidate based on information obtained through a background check, the FCRA lists the following requirements:

• Before acting, the company must provide the candidate or employee with notice and a copy of the consumer report that aided in making the decision. They must also provide a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.” This document should be provided by the company that conducted the report.
• The company must let the candidate or employee know they were rejected based on the report and that the background check company did not make the hiring/firing decision.
• The employee or candidate should be allowed to review the report and address any information that influenced the company’s decision. They should also be given the background check company’s name and contact information.
• The candidate or employee has the right to dispute the report’s accuracy and completeness. They also have a right to receive another free report from them within 60 days.

That’s a quick guide to FCRA compliance in background checks. Review the details of the process with the company you hire to ensure you’re following all the rules and regulations!