What Are an Employer's Obligations Under the Fair Credit Reporting Act?  DataCheck - Home

What Are an Employer's Obligations Under the Fair Credit Reporting Act?

The Fair Credit Reporting Act governs any information provided by a consumer reporting agency, which is any entity that assembles background reports on individuals for other businesses. This applies to all background checks, not just those involving credit reports. If your company conducts background checks on applicants for employment using a third-party background check company, you are required to comply with the FCRA. Job applicants whose rights are violated relative to the FCRA can sue for damages.

First, your company must have a permissible purpose for conducting a background check. This includes screening applicants for employment or screening current employees for promotions.

The job applicant must receive a disclosure and authorization form and sign it before the background check can be conducted. The applicant must also receive an explanation of his or her rights under the FCRA.

If you deny an applicant employment due to the results of the background check, you must send the applicant a Pre-Adverse Action letter with a copy of the background check report and "A Summary of Consumer Rights under the FCRA." You cannot disclose information regarding the hiring decision in this letter.

The next step is to send an Adverse Action notification letter stating that employment was denied because of the results of the background check. You must also include a copy of the background check report and "A Summary of Consumer Rights under the FCRA."

The Pre-Adverse and Adverse Action letters give the applicant the opportunity to dispute information he or she believes is incorrect or outdated. These letters must contain the name, address, and phone number of the company that conducted the background check.

If an applicant believes that he or she may be a victim of identity theft, the employer must provide the FDIC document "Remedying the Effects of Identity Theft."

Employers can take the optional step of providing Initial Notice that they conduct background checks of applicants and employees. This can be posted in the human resources department, on the company's website, or in job advertisements.

Complying with the FCRA can protect applicants from being denied employment based on incorrect information, and it can also protect employers from lawsuits related to non-compliance.

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