Fair Credit Reporting Act (FCRA) Compliance

The Fair Credit Reporting Act (FCRA) is a federal law that protects information collected by consumer reporting agencies, such as credit bureaus, medical information companies and tenant screening services. Users, such as employers, have specific legal obligations, including the duty to investigate disputed information. This includes identity theft. The FCRA also gives consumers certain rights regarding their credit information, including the right to access and dispute information in their credit reports. In this article, we’ll discuss the basics of FCRA compliance and what it means for employers.

What FCRA Compliance Is

FCRA compliance is the process of adhering to the requirements of the Fair Credit Reporting Act. This includes ensuring that businesses that use credit reports to make decisions about consumers, such as employers and lenders, are following the rules outlined in the FCRA.

The FCRA requires employers that use credit reports to make decisions about employment candidates to take certain steps to ensure the accuracy and privacy of the information they use. Employers must get the employee’s consent before obtaining a credit report and must provide them with a copy of the report if the consumer requests it. Employers must also take steps to ensure that the information in the report is accurate, such as verifying the information with the source of the information.

FCRA and The Hiring Process

Background checks and credit checks should never be done just because someone thinks it’s a good idea. Employers must be clear why they are asking for a background check and if needed, a credit check. If they decide these checks are necessary, there should be a written policy that gives the criteria for such background checks and when a no-hire decision will be made. Credit checks especially are frowned upon unless the candidate’s job entails having access to the employer’s bank accounts, credit cards or money.

An example of when a credit check is not justified is when an employer offers a position for auto mechanic. Clearly, there is no reason to do a credit check for this position. However, a background check can be done if the employer always requires a background check for every candidate in this position. If a background check is not done consistently, the employer can be accused of discrimination.

Employers should include in their offer letter, that the offer of employment is contingent upon a successful background check. Additionally, the employer must provide a clear written disclosure and authorization form to applicants before proceeding with the background check. The disclosure and authorization must be separate from the employment application or offer letter. It should not include any other language that is not directly related to the disclosure or authorization.

If an employer decides not to hire an applicant based on information in the background check, the employer must follow the procedures outlined in the FCRA. Those procedures are:

  • The employer must provide the applicant with a copy of the background check report;
  • The employer is to provide a copy of the Summary of Your Rights Under the FCRA;
  • The employer is to provide a pre-adverse action notice explaining the reason for the decision and allow the applicant to dispute the accuracy of the information within a reasonable time frame.
  • If the applicant does not dispute the accuracy of the information, the employer must provide a final adverse action notice.
  • If the candidate does act and cannot remedy the accuracy of the information provided, the employer can give an extension of the job offer or allow them to be on-boarded pending a successful outcome, providing there is a successful conclusion of the false report.

Employers must ensure that the information provided in the background check is accurate by having the candidate provide their information. This includes ensuring that the information is current (it can go back seven years) and relevant to the position being filled. Employers must also address any disputes raised by candidates regarding the accuracy of the information.

Keep in mind that there are mistakes in the databases where criminal convictions are kept. Also, if the candidate has a common name, there can be a mix-up leading to a false conclusion. That is why it is essential to have the candidate enter their own information.

Employers must properly secure and then dispose of any information obtained through the background check process. This includes securely storing the background report. We suggest that it be filed in an employee folder if the candidate is successfully hired. An employee folder can only be viewed by those who are authorized. If the background report is hardcopy, it should be shredded when it is no longer needed. If it is electronic, it should be deleted.

If the candidate is not hired because of the results of the background check, it should be retained in a secure location used for candidates that are not hired.

FCRA Compliance Is Important

FCRA compliance is important because it protects employees and consumers from inaccurate or unfair treatment based on their credit information. It also ensures that businesses are using credit information in a responsible and ethical manner. Failure to comply with the FCRA can result in significant fines and legal fees.

In addition to the potential legal consequences, employers that violate the FCRA can also be sued by candidates that were not given the opportunity to rectify a false report. The FCRA gives those candidates leverage to seek a financial remedy for being refused a job.

How Employers Can Ensure They Are FCRA Compliant

There are several steps employers should take to guarantee FCRA compliance. It is important to understand the intent of the FCRA. Additionally, they should familiarize themselves with the requirements of the FCRA and ensure that they are following the rules outlined in the law.

Developing policies and procedures that detail the steps the business will take to implement the requirements of the FCRA. For example, having a procedure with criteria to know if a credit check is necessary, if so, then obtain written consent from a candidate before obtaining a credit check. Once there is a credit report, review it to see if there is anything on it that would indicate for that position, if a no-hire decision is really warranted.

Additionally, it is critical to ensure an employer is FCRA compliant is to train any employee who is responsible for their hiring process. The training should inform employees of the company procedures and policies related to the internal requirements of background and credit checks and what to do with them. We recommend that a periodic audit is conducted of background and credit checks be performed to ensure that the procedures are followed. This gives the business an opportunity to take corrective action and head off any violations before it is discovered by a government entity.

Conclusion

FCRA compliance is important for employers that use background and credit checks to make decisions about employment candidates. Businesses should take steps to ensure compliance with the FCRA, including understanding the law, developing policies and procedures, training employees, and monitoring compliance.

If you need help with understanding if your business is FCRA compliant or help with any part of the process, be in touch. I still offer a free 60-minute consultation. We are here to help you make HR easy.