Credit Checks for Employment: Rights and Obligations Overview
As we begin a new year, we thought this is a good time to provide our readers with some helpful information and education regarding credit checks. The following is a brief overview of the obligations of employers who use credit checks, those of the background screening companies that perform the work, and the rights of the persons who undergo the checks.
Consumer Protection: The Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act (FCRA) was created to protect consumers (the people who undergo background and/or credit checks, such as job candidates or employees). It is a federal law, enacted in 1970, and has been amended at various times. It specifies the specific rights of consumers, as well as the responsibilities of organizations that gather the information (such as background screening companies and credit reporting companies), as well as employer obligations. Some states have enacted their own version of the FCRA over the years.
Background Screening Company Responsibilities
Background screening companies (referred to as Consumer Reporting Agencies or CRAs in the FCRA) have roles and responsibilities under the FCRA. These include:
• Ensuring the accuracy of the information reported about the consumer;
• Providing the consumer with the opportunity to dispute inaccuracies and/or negative information; and
• Not reporting outdated negative information.
Employers have a number of obligations under the FCRA. Prior to even beginning a background screening, employers need to fully inform the applicant or employee on the nature and scope of the check that will be done, and that the information will be used to make employment decisions.
If an employer receives information from the background check and takes adverse action based on the report (i.e. refusing employment or dismissing an employee), there are specific steps to take. Provide the consumer with a “pre-adverse action” notice, a notification that the CRA did not make the decision to take adverse action, a notice to the consumer of their right to dispute the completeness/accuracy of the report, and direct contact information for the CRA. A copy of the consumer report and copy of the consumer rights under the FCRA should accompany it. For additional details regarding employer responsibilities when taking adverse action, read our Spring 2013 newsletter article, “Adverse Action: Ensure Compliance by Taking Appropriate Steps.”
It is extremely important that employers comply with these requirements, as there are penalties for non-compliance. Notable lawsuits for FCRA non-compliance have resulted in millions of dollars spent on legal fees, settlements and fines for companies that do not comply.
The information above is just a brief overview of the rights and responsibilities associated with the FCRA. Consumers and employers, to find out more about your rights and responsibilities, you can read the FCRA in its entirety by visiting the FTC’s website at http://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-credit-reporting-act. You can also visit the Consumer Financial Protection Bureau (CFPB) at www.consumerfinance.gov/learnmore.
Corporate Screening can help employers by reviewing and working with you to create a compliant background screening program. For more information, call us at 800-229-8606.