FCRA Compliance: What Employers Need to Know Before Running Background Checks

FCRA Compliance: What Employers Need to Know Before Running Background Checks
Vice President of Compliance

As an employer relying on a third party to run background checks on job candidates or existing employees, you must follow the federal Fair Credit Reporting Act (FCRA). Your responsibilities are detailed in the document entitled “Notice to Users of Consumer Reports: Obligations of Users under the FCRA.” Below is a breakdown of your essential duties under the Act. If you have any questions, consult qualified counsel.

FCRA Compliance Basics in 5 Steps

1. Permissible Purpose - Ensure you are only ordering background checks for employment purposes. "Employment" is a broad category that includes hiring, retention, promotion, transfers, and can include volunteers, contractors, etc. In the case of a Medical Staff Services department, for example, this can include appointment or reappointment of physicians.
2. Disclosure - In a written document, inform the consumer that a background check may be obtained as a condition of employment. The disclosure can't be combined with any other form except the authorization.
3. Authorization - Before ordering a background check, obtain written consent from the individual that a consumer report can be obtained now and throughout the term of employment.
4. Certifications - As the "end user" of consumer reports, you must certify the following to the screening firm:

  • You will only obtain background checks for permissible purpose (employment).
  • You have made a clear disclosure to and obtained consent from the consumer before ordering a report.
  • You will not use the consumer report in violation of any federal or state equal opportunity laws.
  • If you make a negative employment decision based on information on the report, you will properly follow adverse action procedures, as outlined below.

5. Adverse Action - If adverse information on a report is used by you to make a negative employment decision, you must take the following actions before rescinding an offer of employment or terminating an employee. Remember, taking adverse action involves a two-prong notification process:

  • In a written, oral, or electronic pre-adverse notice, inform the consumer of:
    - The name, address, and telephone number of the background screening company that assembled the report.
    - The fact that the background screening firm did not make the adverse decision and cannot explain why the decision was made.
    - His/her right to a free file disclosure if a request is made to the screening firm within 60 days.
    - His/her right to contact the screening company directly to dispute inaccurate or incomplete information on the report.
  • Once the pre-adverse notice is sent, allow the consumer 5 days to contact the screening company to dispute the report. After 5 days, if you do not hear from the consumer or the background check provider, proceed with your final employment decision.
  • However, if the consumer disputes information on the report, the screening firm will perform a reinvestigation that must be completed within 30 days and at not cost to the consumer. The screening company must update you and the consumer of the reinvestigation results.
  • If and when making a final adverse decision, you must send the consumer a final adverse notice.

PreCheck Background Screening Resource Kit