How to Ensure FCRA-Compliant Use of Consumer Reports for Hiring: Part I

The Fair Credit Reporting Act (FCRA) is a decades-old regulation that originally addressed credit-related issues but was later expanded to cover consumer reports of all types.

The FCRA’s strict rules about using background checks for employment purposes apply when those checks are compiled by a consumer reporting agency (CRA). Organizations that use consumer reports to evaluate volunteers and independent contractors may also be subject to FCRA requirements.

There’s been a steep increase in litigation on this topic over the past decade, so it’s essential to check FCRA-related policies with your legal counsel. But if you’re just getting started, a simple overview may be in order. Here are the basic steps employers must follow if you’re using a provider to supply background information.

Disclosure & Authorization

When an employer intends to use a background search company to compile a consumer report (often referred to as a background report, background check, or screening report) on an individual, they must first do two things:

Disclosure

Prior to requesting a consumer report, the employer must provide a disclosure to the individual. This disclosure should mention that the consumer report may be obtained for employment purposes. The written disclosure must be clear and conspicuous,consisting solely of the disclosure, with no extraneous information. Further, the disclosure form should be in a stand-alone document (i.e., not buried at the end of an employment application).

Authorization

The applicant must then provide written authorization for the consumer report.

A common trend is for employers to provide the disclosure and authorization form to candidates in separate documents, even though the FCRA allows for the information to be included in the same document.

The disclosure form contents, in particular, are a heavily litigated item, routinely costing employers across the country hundreds of thousands—if not millions—of dollars. If an employer were to take one action after reading this article, we’d recommend obtaining legal counsel review of the disclosure form (and adverse action processes).

If the information on the consumer report raises no issues that may negatively impact the hiring or other employment-related decision, congratulations! If the consumer report raised problematic issues, however, additional FCRA requirements apply.

Check back for Part II of this blog series where we will cover Pre-Adverse & Adverse Action notifications.

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