FCRA Compliance for Employers 

What is the FCRA?

The FCRA is a federal law that governs information collected by credit bureaus, medical information companies and tenant screening services. It ensures that the information that appears on consumers’ records is accurate, fair and can be accessed only for approved purposes. While many people associate the FCRA with credit reports due to the name of the act, it also protects a variety of personal data, including criminal background check reports and driving records.

Who does the FCRA protect?

The protections of the FCRA apply to U.S. citizens and residents. All credit bureaus, screening companies and other consumer reporting agencies in the United States must follow the FCRA.

There are also special protections that apply to job seekers, including limitations on how consumer reports can be used in making hiring decisions. One goal of the FCRA is to give job candidates the opportunity to fix any misinformation on their credit record or to provide context or an explanation for their history before an employer withdraws a job offer. Another important protection for job seekers is that a consumer report may not be run on you without your written consent. 

What is FCRA compliance?

In general, FCRA compliance applies to the manner in which consumer reporting agencies and the institutions that use their data, or report to them, handle consumer information.

However, FCRA compliance has a special meaning when it comes to hiring and employment. Employers have specific responsibilities when it comes to FCRA compliance and consumer reports. There are processes that employers must follow in order to obtain and use consumer reports on potential new employees. FCRA compliance for employers typically means that these procedures were followed before obtaining a background check, prior to taking any adverse action based on that background check and after any adverse action was implemented.

In addition to maintaining FCRA compliance, employers are responsible for following all state and local laws regarding background checks or the use of consumer reports. Some cities and states have further restrictions on how the data obtained may be used. For example, many regions have started placing restrictions on how employers may use criminal records reports when determining eligibility for employment.

Employer responsibilities before requesting a background check

Before requesting a FCRA-regulated background check, you must provide written notice to the candidate that you plan to run a consumer credit report. Employers must disclose to potential hires that they plan to request consumer reports during a background check before running any credit reports. This notice must be provided in writing in a stand-alone document. It must also disclose that the results of the background check will be used for the purpose of making a hiring decision. In some states, employers must also offer applicants a copy of the report obtained. 

The candidate must provide written authorization for this request before you proceed with the background check. This may be done electronically with an electronic signature, and is often included in job applications. Do not initiate the check until you have a written record of their consent. 

If you are using a background check service, it may obtain the permission on your behalf. Otherwise, you will generally need to provide it with proof that you have obtained authorization before it will run the background check for you.

Employer responsibilities before taking adverse action

If a candidate’s consumer report comes back and shows an unfavorable credit history, there are a few steps that you will need to take before you can take any adverse actions, such as withdrawing a tentative job offer.

First, you must provide the candidate with a pre-adverse action notice. You must include a copy of the consumer report that you obtained and a copy of the document “A Summary of Your Rights Under the Fair Credit Reporting Act.”

Once you have sent the pre-adverse action notice and all of the required documents, you must wait a minimum of five business days before taking adverse action to allow the candidate time to review the report and dispute or respond to any of the information on it.

Employer responsibilities after taking adverse action

After you have allowed the candidate enough time to respond to the pre-adverse action notice, you may take adverse action. However, you do still have a few responsibilities to wrap up once adverse action has been taken. You must provide the candidate with a written notice that adverse action has been taken and include the following information:

• The information for the consumer reporting company that supplied the credit or consumer report (including their name, contact number and business address)
• A statement that the consumer reporting company listed was not responsible for the decision to take adverse action and that it is unable to provide specific reasons for the decision
• Notice of the candidate’s right to dispute the accuracy or completeness of the information the consumer reporting company provided in its report
• Notice of the candidate’s right to obtain a free report from the consumer reporting company within 60 days from the date of the adverse action notice

The last step is to follow your state and local laws regarding document retention. If the records must be kept for a set period in your jurisdiction, store them securely. Otherwise, you should shred and dispose of them.

What happens if an employer violates the FCRA?

Employers can be subject to lawsuits and fines if they violate the FCRA, and they can be liable for either actual or statutory damages between $100 and $1,000 per violation. In addition, they may be required to pay attorneys’ fees for the complainant and might face punitive damages if they frequently or willfully violate FCRA requirements. 

FCRA violations are also commonly the subject of class action lawsuits. The fees and fines of these can add up significantly when a large number of employees or applicants join a lawsuit. 

Make sure that you follow all of the proper procedures when conducting background checks, or choose a background check service to work with that follows all FCRA regulations.