An introduction to the Fair Credit Reporting Act

The FCRA is a federal law that oversees credit reporting agencies in order to ensure all consumer credit information is fair and accurate. The Federal Trade Commission and the Consumer Financial Protection Bureau enforce the law and oversee how credit information is collected and used. The FCRA details what data can be collected, who can view a credit report and under what provisions.

As an employer, you need to comply with the FCRA when making employment decisions. This includes hiring, reassignments, promotions and employee retention. For example, when you hire new employees or plan to promote current ones, the FCRA covers any of the background checks performed through third parties such as the following:

• Criminal records
• Employment history verification
• Driving record
• Academic history verification
• Credit check
• Drug test

The FCRA also guides the way in which you can ask, receive and use employee background checks. For example, if you need a consumer report an employee before hiring them, they need to be notified beforehand and you must have their written consent to obtain it. These guidelines must be followed in order to remain compliant and avoid a slew of legal problems.

Related:10 Recruiting Strategies for Hiring Great Employees

Quick tips on FCRA

Here are some tips regarding the FCRA and overall compliance:

• Review the policies and procedures of the background screening program you use. As an employer, it’s important to maintain compliance by taking a look at how the background screening program you use works.
• Identify background screen program deficiencies. If the program you’re using has any weak spots, it’s important to identify them as soon as possible and address them in a timely manner. This ensures a fair and accurate consumer report for employees as well as the compliant obtainment of them.
• Perform a lengthier screening process if needed. Consider adding steps to the screening process to ensure accurate reports were pulled by the employer.
• Provide all necessary notifications. In order to remain compliant, it’s important to provide applicants and employees with all necessary notifications such as adverse action notifications or disclosure. This can help avoid legal action taken against you and your company.

Related:How to Find Good Employees

Actions to take

Before performing a background check or gettinga consumer report, it’s important to follow a certain set of steps. You’ll also need to follow specific guidelines when adversely acting upon the results of the report. The more compliant you are, the more beneficial the FCRAis to you and the easier you’ll avoid adverse legal actions taken against your company.

Before a report

Prior to obtaining a consumer report, you need to provide employees with a written notice that states you may pull their consumer report and use the provided information to make hiring decisions. You also need written consent from the employee or applicant before performing a background check. Lastly, you need to provide verification to your company that you notified the applicant, received their permission, complied with the FCRA and won’t discriminate or misuse any of the information you obtained.

After a report

If you plan on taking adverse action against an employee based on the information in their consumer report, you must notify them and provide them with a copy of the consumer report as well as a copy of A Summary of Your Rights Under the Fair Credit Reporting Act. Adverse actions can include the rejection of an application, employee termination, reassignment, and promotion denial among others.

After taking adverse action, you’ll also need to notify the employee or applicant. This can be done in writing, electronically or orally and includes the name, address and phone number of the company you used, a statement that specifies the company didn’t make the decision nor can they provide further explanation and a notice letting them know they have the right to dispute the accuracy or completeness provided to the employer. Employees should be notified that they can obtain a free report from the company within 60 days.

FCRA frequently asked questions

Here are some frequently asked questions about the FCRA:

Do all companies have to comply with the FCRA?

If you’re using a third-party screening provider, you are required to follow all FCRA guidelines and maintain compliance.

How is the FCRA beneficial for employers?

Here are some of the benefits of complying with the FCRA:

• The FCRA can help your company avoid legal action taken against them as well as any costly litigation. Maintaining compliance helps avoid class action suits such as those related to improper notices and disclosures.
• The FCRA also creates a safer working environment by ensuring all applicants and employees have been vetted by employers. This means you can reduce the potential risks of hiring employees with less than favorable backgrounds such as prior history with physical violence or theft.
• The FCRA also allows for a diverse group of employees which can help increase workplace morale and overall productivity.
• Following FCRA guidelines also confirms any professional and educational information employees or applicants provided.
• It also allows an employee and employer’s relationship to be built on trust when the provided information is correct. This can help with employee retention, too.

What are some common FCRA violations?

Common violations can include improper notification to employees of adverse actions or other procedures, failure to gain consent from employees or applicants and failure to provide employees and applicants with a summary of their rights.

How is the FCRA beneficial for job applicants?

The FCRA is beneficial for job applicants in that it informs them of any potential background checks prior to when they occur. It also gives them the opportunity to provide their consent. The FCRA also allows job applicants to review and ensure all information provided to the employer was correct and to correct any errors if needed. It lets them know how their data is being used in the hiring process.