The FCRA (Fair Credit Reporting Act) is a law that the FTC (Federal Trade Commission) enforces to protect the accuracy and privacy of the information in credit reports. It also regulates how employers run and use background checks when hiring or promoting employees.
Companies need to understand how FCRA relates to their employment screening program. This article will discuss everything employers need to know about the FCRA to stay compliant with this FTC law.
When someone applies to their company, employers look at more than just an individual’s resume. They also check their background. An employment screening company provides the background report, which includes credit history (loans, current payables, bill payments, bankruptcy filing, and more), criminal records, employment history, driving records, current or former address, and any other information regarding character, personal characteristics, lifestyle, and general reputation.
When employers buy this background report from pre-employment background check companies, they have rules they must follow. First, the employer needs the applicant’s permission to see their background report. The applicant must sign a form authorizing the company to conduct an employee background check on them.
Next, the employer needs to tell the applicant that they might use the information to make decisions regarding their employment. They also need to explain the nature and scope of the report.
Organizations must be careful from the first step of their employment screening program, or they risk facing litigation. Employers must avail of background check services that are FCRA compliant. They should also background check every candidate, not selectively based on gender, age, disability, religion, race, or national origin.
Before Taking Adverse Action
Once the employer finds something in the report, they must provide a pre-adverse action notice before making any employment decisions based on the result of the background screening report. The employer is also required to provide a copy of the report and the Summary of Your Rights Under the Fair Credit Reporting Act.
During this phase, the FTC asks that employers allow a reasonable amount of time for the applicant to review the report, dispute and correct any wrong or incomplete information, or explain its findings. The generally accepted and enforced industry standard is five days. Some state and local regulations may set a specific time frame.
Following FCRA rules in every step of the employment screening process is crucial. However, many companies make critical mistakes during this phase, resulting in profound financial implications. In 2017, TransUnion LLC had to pay a $60 million settlement after violating three distinct provisions in the FCRA.
After Taking Adverse Action
Suppose the employer chooses to move forward with the decision not to hire or promote the applicant based on the result of the report. In that case, they are required by the FTC law to inform the applicant verbally, in writing, or electronically of the name, address, and phone number of the company that provided the background report.
They should also state that the employment screening company didn’t make the adverse action decision and that they cannot give specific reasons for the adverse action taken. The applicant also needs to be informed of their right to additional free consumer reports from the screening company within 60 days, should they continue to dispute the accuracy or completeness of the information contained in the report.
To protect the applicants from unauthorized access to the report, FTC requires employers to properly dispose of the consumer report by shredding, pulverizing, burning, or destroying the document to avoid it being reconstructed and read.
As mentioned earlier, there are profound financial implications when FCRA rules aren’t followed to the tee.
To ensure that all data and reports used and the procedures performed in the employment screening reviews comply with FCRA and related laws, employers must partner with dependable pre-employment background check companies.
A good background screening provider can help employers follow the FCRA’s compliance guidelines so they can confidently find their perfect candidate without worrying about breaking any laws.