The FCRA: Are You Compliant? (Part 2)

Posted by on September 4, 2013 in Business Management, Hiring [ 0 Comments ]

fair credit reporting act complianceDo you know who you are hiring? Without a background check, you could be hiring someone who is under-qualified or a risk to your business. Pre-employment screening can provide your business with a deeper sense of confidence in who it’s hiring. However, when you use pre-employment screenings or back ground checks to make employment decisions, whether it’s hiring new staff or looking to promote current employees into new roles, you must comply with the Fair Credit Reporting Act (FCRA). In part 1, we discussed adverse reporting, disclosure, dispute and disposal regulations. In part 2, we’ll cover what to do before and after you get report and take action based on what’s contained within it.

Related: The FCRA: Are You Compliant (Part 1)

Before You Get a Report

Before you can even attain a consumer report as part of your background check process, you must take certain steps to ensure your business isn’t at risk of violating the FCRA or the rights of the candidate or employee

  • Notify the applicant or employee that you may use information from consumer reports for decisions related to their employment in writing. This notice must be written, in stand-alone format, and not a part of an employment application.
  • Obtain written permission from the individual. This could be part of the notification (above) or separate. If you plan to collect consumer reports on multiple occasions or throughout employment, make sure that you say so in the statement clearly.
  • Ensure compliance from the company you are receiving the information from. You must certify that you notified and received permissions from the applicant or employee, complied with FCRA requirements, and will not misuse the information.

Related: Get quotes from pre-employment screening providers.

Before and After You Take Adverse Action

Before and after you take adverse action based on information you received through your consumer reports and background check process. While you have rights as a business to collect this information with an individual’s permission, that individual also has rights that must be adhered to.  

  • Before: You must give the applicant or employee a notice with a copy of the report you used to make a decision as well as a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.
  • After: If you choose to take action based on information within a consumer report, you must let the individual know orally, in writing, or electronically. You must provide the person with an adverse action notice that includes: the name and contact information of the company that supplied the report, a statement that the company that delivered the report did not make the decision to take adverse action, and a notice of the individual’s right to dispute the accuracy or completeness of any information within the report.

What Happens If Employers Don’t Comply

If your business doesn’t comply with the regulations laid out in the Fair Credit Reporting Act, there are legal consequences. If you fail to obtain permission from the applicant or employee or fail to provide the necessary disclosures in a timely fashion, or even fail to provide adverse action notices, your business is at risk. Willful noncompliance and negligent noncompliance can result in your business owing actual and punitive damages, as well as attorney fees, to the consumer. For knowing noncompliance, you could be also liable for actual damages sustained by the reporting agency. There are serious financial consequences for businesses that fail to comply and doing so could also damage brand reputation, driving away top-tier candidates and even current employees.

Related: 5 Signs That Your Business Needs Pre-Employment Screening

Keep in mind that these aren’t the only guidelines businesses using consumer reports in employee screening must adhere to. The FCRA is a lengthy document and while background checks and pre-employment screening can protect your business, if you don’t comply with the regulations you could end up doing more damage than good.

(Image: Jeroen van Oostrom via

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