Employers Background Checks

For many human resource professionals and business owners, the Fair Credit Reporting Act (FCRA) (at 15 USC § 1681b) and what it means for their organization can be confusing.  The FCRA is the federal law that governs any information provided by a consumer reporting agency (CRA).  A CRA is defined as any entity that assembles reports on individuals for other businesses - such as a background screening provider.  

The FCRA, enacted in 1970, provides important protections for credit reports, consumer investigative reports, and employment background checks. The FCRA is there to protect the job applicant (consumer) as well as the organization. If employers are conducting background checks on job applicants and using a third party background screening provider – you are required to be compliant with the FCRA.

The cost of non-compliance can add up quickly. Job applicants may seek a maximum of $1000 in statutory damages in addition to actual damages, punitive damages and reasonable attorney fees for willful noncompliance with the Act. The background screening provider should supply the necessary tools and education regarding the FCRA to enable your organization to maintain compliance with this important legislation. 

The key to ensuring compliance and understanding the requirements under the FCRA is following these basic steps:

Step One: Permissible Purpose

To start, your organization must have a “Permissible Purpose” for running the background check as defined under Section 604 of the FCRA. The defined permissible purposes include, but are not limited, to Employment purposes.

Step Two: Disclosure & Authorization

Disclosure and authorization is a required step under the FCRA. The Disclosure and Authorization form is the documentation used to obtain the applicant’s signed authorization for the background check. This step is

required before initiating a background check on any individual. 

The applicant must receive the following documents before a background check can be conducted:

ƒBackground Disclosure and Authorization (“D&A”) form (signed and returned by applicant)

Summary of Rights Under the FCRA

The signed Disclosure and Authorization form, regardless of the hiring decision, should be kept on file for a minimum of 5 years as allowed under the federal statute of limitations for civil filings of non-compliance.

If employment is denied (in whole or in part) based on the results of the background check, the following steps are required:

Step Three: Pre-Adverse Action Notification 

A Pre-Adverse Action letter must be sent to the applicant. With this letter, a copy of the completed background check report as well as the Summary of Consumer Rights under the FCRA must be included. Information regarding the hiring decision cannot be disclosed in this notification.

Step Four: Adverse Action Notification 

Did You Know?

• The FCRA applies to all background screening, not just screening which includes credit reports. 

• An employer must always disclose and obtain written authorization prior to the background investigation (unless it is a case of suspected wrong doing).

• Many accurate background checks cannot be done instantly. Record searches at county courts must often be done in person to obtain current information.

• Under the FACT Act, if an applicant or employee expresses any concern they may be a victim of identity theft, the background screening provider and/or your organization must provide them with the FDIC document titled, “Remedying the Effects of Identity Theft”.

• Initial Notice is an optional step under the FCRA which can be used to notify employees and applicants that the employer conducts background screening. Methods for Initial Notice include: a) Signs in the HR Department, b) Statement on the company website, job postings, etc.

A link to the most recent summary of rights is available at http://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf

A relatively new federal agency, the Consumer Financial Protection Bureau ("CFPB"), created as part of the Dodd-Frank Act of 2010, has replaced the Federal Trade Commission ("FTC") as the primary rulemaking and enforcement authority for background checking of individuals under the federal Fair Credit Reporting Act ("FCRA"). The CFPB has issued regulations revising the Summary of Consumer Rights form used by employers, as well as two forms used by Consumer Reporting Agencies ("CRA"). The new forms took effect January 1, 2013.

The new Summary of Consumer Rights, available here, replaces FTC contact information with references to the CFPB, and directs consumers to visit the CFPB's website for further information about their rights. No substantive changes have been made in the FCRA background-checking procedures. Therefore, the new Summary of Consumer Rights must be provided as part of the Pre-Adverse Action Notice packet, as explained above. In addition, the Summary of Consumer Rights must be given when disclosing the nature and scope of "investigative consumer reports," which are conducted via personal interviews by a CRA.

Now is a good time for employers to revisit their background-checking procedures and forms to ensure compliance with applicable federal and state laws. In addition to the new federal Summary of Consumer Rights.

If you have any questions about how your business should comply with the FCRA contact the Madathil Law Office for a free consultation.

Madathil Law Office, LLC

Nebraska Small Business Lawyer

1625 Farnam Street #830

Omaha, NE 68102

angela@madathil-law.com

http://www.madathil-law.com/

T: 402.577.0686

F: 402.932.9551

Image from here.