Background Checks Are Protected Under the FCRA-Employers Beware
Updated: Feb 10
As an employee, your employer may use consumer reports when you are hired and when you are evaluated for promotion, reassignment, and retention — as long as your employer complies with the Fair Credit Reporting Act (FCRA). Sections 604, 606, and 615 of the FCRA spell out your employer’s responsibilities when using consumer reports for employment purposes. Background checks are "consumer reports."
The FCRA is designed primarily to protect the privacy of consumer report information and to guarantee that the information supplied by consumer reporting agencies is as accurate as possible. Amendments to the FCRA — which went into effect September 30, 1997 — significantly increase the legal obligations of employers who use consumer reports. Congress expanded employer responsibilities because of concern that inaccurate or incomplete consumer reports could cause applicants to be denied jobs or cause employees to be denied promotions unjustly. The amendments ensure (1) that individuals are aware that consumer reports may be used for employment purposes and agree to such use, and (2) that individuals are notified promptly if information in a consumer report may result in a negative employment decision.
What is a Consumer Report?
A consumer report contains information about your personal and credit characteristics, character, general reputation, and lifestyle. To be covered by the FCRA, a report must be prepared by a consumer reporting agency (CRA) — a business that assembles such reports for other businesses.
Employers often do background checks on applicants and get consumer reports during their employment. Some employers only want an applicant’s or employee’s credit payment records; others want driving records and criminal histories. For sensitive positions, it’s not unusual for employers to order investigative consumer reports — reports that include interviews with an applicant’s or employee’s friends, neighbors, and associates. All of these types of reports are consumer reports if they are obtained from a CRA.
Key Provisions of the FCRA Amendments Written Notice and Authorization.
Before you can get a consumer report for employment purposes, you must notify the individual in writing — in a document consisting solely of this notice — that a report may be used. You also must get the person’s written authorization before you ask a CRA for the report.
Adverse Action Procedures. If you rely on a consumer report for an "adverse action" — denying a job application, reassigning or terminating an employee, or denying a promotion — be aware that:
Step 1: Before you take the adverse action, you must give the individual a preadverse action disclosure that includes a copy of the individual’s consumer report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act" — a document prescribed by the Federal Trade Commission. The CRA that furnishes the individual’s report will give you the summary of consumer rights.
Step 2: After you’ve taken an adverse action, you must give the individual notice — orally, in writing, or electronically — that the action has been taken in an adverse action notice. It must include:
the name, address, and phone number of the CRA that supplied the report;
a statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give specific reasons for it; and
a notice of the individual’s right to dispute the accuracy or completeness of any information the agency furnished, and his or her right to an additional free consumer report from the agency upon request within 60 days.
Non-compliance. There are legal consequences for employers who fail to get an applicant’s permission before requesting a consumer report or who fail to provide pre-adverse action disclosures and adverse action notices to unsuccessful job applicants. The FCRA allows individuals to sue employers for damages in federal court. A person who successfully sues is entitled to recover court costs and reasonable legal fees. The law also allows individuals to seek punitive damages for deliberate violations. In addition, the Federal Trade Commission, other federal agencies, and the states may sue employers for noncompliance and obtain civil penalties.
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