Remote working has made it increasingly important for employers to conduct background checks on prospective employees. As part of the standard employment background checks, criminal history, social security numbers, drug tests, and other public records are screened. Credit reports or consumer reports from credit bureaus are analyzed for a more in-depth screening before making employment decisions.
Fair Credit Reporting Act
Enacted in 1970, the Fair Credit Reporting Act (FCRA) is a federal law that protects the validity, legitimacy, and confidentiality of consumer credit reports. FCRA regulates credit reporting agencies for how these agencies gain, process, and use the data in your consumer reports.
The FCRA also provides individuals with the right to dispute inaccurate information and flag inconsistencies on their credit reports. A potential employer may also benefit from implementing credit checks under the FCRA to verify prospective hires’ financial misconduct, credit capacity, and creditworthiness.
What Impact Does the FCRA Have on Employers and Background Screening Companies?
A bad hire can lead to a security breach or ruin your company’s financial stability. Conducting pre-employment background checks is a safe way to prevent crises that might harm your company’s reputation. Background checks are typically outsourced to a third-party vendor for job applicants. When determining an applicant’s eligibility, these screenings provide a thorough look into the applicant’s past conduct.
An employer can take advantage of a thorough background check to:
- Research criminal conviction history and public records
- Verify applicant’s identity
- Search credit history
- Validate employment history
- Verify education credentials
- Search motor vehicle records
A background check provider is considered a consumer reporting agency (CRA) under the FCRA and must therefore conduct their background investigation transparently with the applicant’s consent. Both employers and CRAs are regulated by the Fair Credit Reporting Act whenever a third-party vendor is utilized to conduct an employee background check. These regulations protect job applicants from discrimination and false representation in their reports. The FCRA outlines several legal requirements under which employees’ personal information can be safeguarded:
- Background checks must be consented to; applicants have the right to be informed before someone starts a review.
- The applicant has the right to contest any inaccuracies found in the background check.
- Applicants must be notified in writing whenever an adverse decision is made, following FCRA procedures.
Why Is FCRA Compliant Background Checks Important for Employers?
As an employer, making difficult decisions is a part of your typical business day. The challenges may involve promoting employees within the company or hiring trustworthy employees. Conducting a background check helps ensure the eligibility and integrity of the candidates involved in both instances. In addition, a trusted background screening company can help ease the hiring process by providing reliable reports for employment purposes. The Federal Trade Commission enforces the FCRA to ensure that background screening reports, also known as consumer reports are accurate and fair.
Adhering to FCRA guidelines while conducting background checks is essential for employers to avoid lawsuits and penalties. The FTC requires employers to follow specific procedures before and after performing employee background checks.
Before Requesting a Background Check Report
An employer must:
- Inform the applicant that the results of a background check could adversely impact their application or employment. The notice needs to be clear and conspicuous.
- Receive written authorization from the candidate or the employee authorizing the background check. There should also be explicit notification to the employee or job candidate if any background checks are conducted during their employment, except in cases of internal investigations, in such cases as thief or fraud.
- Confirm the specific use of the information and whether the data will be used for other purposes.
- Confirm in writing with their employment background screening company that they will remain compliant with the FCRA
The Adverse Action Process
If an employer decides to make an adverse decision based on the information in the background check report, the following process will have to be followed for the process to be compliant with the FCRA:
- Provide the applicant with a Pre-Adverse Action Notice, stating that the employer is about to make an adverse decision based on the information in the background check report.
- The employer must adhere to the waiting period. The FCRA requires seven calendar days before taking final action to allow the candidate to review and contest the notice.
- After the waiting period, the employer sends the Post-Adverse Action Notice to the candidate, stating their final decision not to move forward.
The Post-Adverse Action Notice must include:
- The specific reason for the adverse action decision
- The background check report used to determine the adverse employment decision.
- A copy of the summary of your rights under FCRA obtained from your background investigation company.
- A statement that the employee can dispute the report
- Provide details of the screening company that prepared the report.
Disposal of Consumer Reports
After the background check is completed, it is essential to dispose of the consumer report correctly. Background check reports should be filed separately from other human resource files so that the information contained within remain private and confidential. It would be considered discriminatory, for example, if the hiring manager’s compensation, promotion, or retention decision were influenced by the information reviewed in a background check report. These reports should be reviewed by and retained by human resource management professionals or other staff trained to manage sensitive data within a company appropriately. Under the Equal Employment Opportunity Commission, employers must preserve background check reports for a minimum of one year after they are generated. Employers should create and maintain a records retention policy for background check reports, ensuring consistent application of such policy.
FCRA Violations and Remedies
To ensure consumer protection, prospective employers need to understand and comply with the FCRA. Along with the FCRA, employers must also abide by the regulations outlined by the EEOC. Under the EEOC, employers are prohibited from denying a position to persons based upon their race, national origin, age, gender, or disability. For instance, unintentional overuse of criminal conviction data or credit reports can harm minorities and women and, therefore, lead to discrimination claims.
Denying a person’s employment without proper adverse action notification can lead to an FCRA violation and result in claims of discrimination in cases when a non-minority candidate was hired over a person in a protected case (e.g., minority or women).
The consequences of FCRA violations are expensive lawsuits and may take years to resolve. However, a high-quality background check company can help employers understand the reasonable procedures and limitations outlined by the federal, state, and local laws for conducting a background check.
First Contact HR recommends conducting credit history reports for applicants or employees with financial discretion or access to sensitive customer data. Information is obtained from various federal oversight agencies and state regulators to ensure fair, accurate, and transparent background check reports. Reach out to us to request a quote or additional information.