What is the Fair Credit Reporting Act (FCRA)?
The Fair Credit Reporting Act Compliance, or FCRA for short, is legislation set up by the government of the United States to ensure that the information being collected by consumer agencies is fair, accurate, and secure. The intent of this act was to protect consumers from wrongdoing by companies or entities that tried to be vengeful or misleading via their credit reports. To ensure that this sort of malicious or erroneous activity does not take place, the FCRA regulates how agencies can collect and utilize such information. In particular, it determines how employers can use background checks, credit checks, and so forth. It is one of the key legal concepts when it comes to consumer rights in the USA.
What is FCRA Compliance and What Does This Mean for Employers?
FCRA Compliance is the act of making sure your process follows the FCRA laws perfectly, whether it be an FCRA compliant background check, FCRA compliant tenant screening, or any other number of things related to a selection process.
The FCRA comes into play whenever an employer conducts a job-related background check on a candidate or worker, whether it be criminal records, job/education history, motor vehicle details, professional licenses, and similar items. anytime an employer obtains a background check for employment purposes from a third party. As you can see, the FCRA is not restricted to credit reports, but any sort of sensitive personal information used to verify a prospective employee’s or tenant’s information or vet them for hire.
Keep in mind that both the employer and the company performing the background check are required to comply with the FCRA. Furthermore, employers must communicate their intent to run background checks and receive written permission from the candidate in question. There are also strict regulations in place when it comes to how employers can use this information to make a decision – the goal is to avoid adverse impact, after all.
To comply with these laws, employers should have a series of procedures set up to ensure that the reports they are gathering are valid, reliable, and job-related. All other laws and guidelines must be followed too – one cannot violate a different law to comply with the FCRA. That would be similar to disparate impact.
Compliance from the CRA’s point of view means having procedures in place to make sure the reports are as accurate as possible while following all state and federal reporting guidelines.
The consumer/prospective employee or tenant must be notified when adverse action is taken. In such a message, the employer must disclose the entity who performed the check and clarify why the background information was relevant to their decision. Transparency is key!
What are the Consequences of FCRA non-compliance?
The consequences of FCRA non-compliance can be significant. The process is very precise, as one can tell, and it is very easy for an employer to be sued at the federal level for failure to comply. Hundreds of such lawsuits are filed every year! As with all legal proceedings, this means money out of the company’s pocket – money spent on lavish legal fees, settlements, punitive damages, reputation hits, and the sheer loss of time.
There are other consequences as well. Companies want to signal to the world that they want only the best employees. This is attractive to top-end candidates who take pride in their talent and want to ensure that their coworkers are properly vetted as well. Compliance also ensures that a great employee won’t be passed up just because of a blip in their history: the safeguards help give employees and tenants more of a chance. Perhaps they are rebounding from a rough time and are hungry to succeed: quickly dismissing them over something in their report that isn’t really job-related would just be shooting the company in the foot!
How do you comply with the FCRA when hiring talent?
The key is to perform a proper background and/or credit check that is transparent, well documented, valid, reliable, and related to the job. For example, it would make sense to perform a credit check for a worker who will be managing peoples’ finances or accounts, as a strong command over their personal finances would indicate that they can pass along the same wisdom and discipline to their clients. Moreover, it would be important to verify that a person has professional certifications if the job requires them. As long as one can prove job-relatedness and show that the process is transparent and compliant, then the employer should have no issues!
How to Perform an FCRA Compliant Background Check
1. Disclose.
First and foremost, the employer will inform the subject that they are going to be performing a background report. It should be a written document with very clear and succinct wording that is sharply focused on disclosure.
Do not include superfluous or extraneous information, such as a waiver of rights or guidelines on behavior. Keep it laser-focused on disclosure. The document cannot be obfuscated by other information or hidden within a different document, as this could backfire on the employer and result in litigation based on an intent to mislead or discriminate.
2. Authorize.
The subject must give written consent to the background check after they are made aware of ALL details and consequences of the check. The FCRA is not strict on the language of such a document, but the content and style must be consistent, clear, and – above all else – extremely obvious and transparent. Everyone should know, without a shadow of a doubt, that they will be subjected to background screenings. Keep in mind that your state may have additional guidelines for the authorization step.
3. Conduct the check.
Partner with the agency or entity that performs the background check. This is pretty straightforward.
4. Make a decision, if needed.
If there is no issue with the background information and the hiring will continue, no adverse action will be needed for that person. However, if adverse action is to be taken, then the next step must be followed to a T.
5. Follow up on adverse action.
In this context, adverse action is something negative that an employer, landlord, or similar entity will perform against an employee, tenant, etc. Turning down promotions, prospective employees, applications, and similar actions fall under this umbrella as long as the decision is based in part on information related to the background check. Everything here must be followed perfectly, without question:
- Alert the prospect that the decision is in the works. Notify them of their federal rights and provide a copy of the background information. Make it clear that this report can be disputed as it may contain incomplete or inaccurate information. Provide a reasonable amount of time for a response and dispute – specific times may be required by law.
- Be patient while waiting for the response. The prospect must have enough time to actually dispute the report before you move forward with the process – if you don’t provide enough time, you may get sued.
- Once the period is over, you must contact the applicant and let them know that you will be taking adverse action. Again, be transparent and include any contact information related to the CRA or entity that conducted the report. Make it clear that they can obtain a copy of the report and can still dispute anything within it, but also make it clear that your company will be moving forward with the adverse action at this time.
Run FCRA-Compliant Background Checks with Axiom Backgrounds for Hires
HR is a minefield, and FCRA compliance is a potential legal disaster waiting to happen if you’re not careful. It’s really important to have the best tools at your disposal, both human and otherwise, to safeguard your company from either a lawsuit, unethical practices, or both. If you want a robust option for FCRA-compliant background checks, we recommend starting with Axiom Backgrounds for Hires. It’s a great resource that you won’t be disappointed with.
