FCRA Requirements for Employers | Certn: The World's Easiest Background Checks

Recruiting top talent while ensuring a secure and compliant workforce starts with understanding the power of the Fair Credit Reporting Act (FCRA). For employers, the connection between background checks and the FCRA requirements is undeniable. When using consumer reports, such as background checks through a third-party agency, to make crucial hiring decisions, compliance with FCRA requirements is a non-negotiable.

In this blog post we dive into the FCRA requirements for employers and discuss the roadmap to building a seamless, compliant, and effective background screening program. From obtaining written consent to providing pre-adverse and adverse action notices, the steps are clear – and important.

Remember, the FCRA doesn’t stand alone. We’ll also explore other federal, state, and local requirements that should play a role in your quest for compliant background checks. The Equal Employment Opportunity Commission (EEOC) offers valuable guidance, while “Ban the Box” and Fair Chance laws strive to create a pathway of opportunity for those with a criminal record.

What’s the FCRA

Enacted in 1970, the federal Fair Credit Reporting Act (FCRA) is a United States federal law that regulates the collection, dissemination, and use of consumer credit information with the goal of promoting fairness and accuracy and ensuring data confidentiality in the credit reporting system. The United States Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) enforce the FCRA.

Let’s debunk a common misconception: “consumer reports” doesn’t just apply to credit reports generated by Equifax, Experian, or TransUnion. Under the FCRA, consumer reports include any information from a consumer reporting agency which bears upon a consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, and/or mode of living. Given this, background checks also count as “consumer reports.”

FCRA Requirements for Employers

Background checks and the FCRA are closely connected because the FCRA governs the use of consumer reports in the employment context, which as noted include background checks.

When employers use consumer reports such as background checks to make employment decisions, they must comply with the FCRA requirements to ensure fairness, accuracy, and privacy for candidates.

Here are a few critical steps the FCRA requires that employers take:

  1. Provide a Clear and Conspicuous Disclosure and Obtain Written Permission: Before obtaining a consumer report or an investigative consumer report, employers must ensure that a clear and conspicuous disclosure has been made in writing to the consumer and that written authorization has also been obtained. This consent must be separate from the job application and must inform the individual that the report will be used for employment purposes.
  2. Consumer Reports and Investigative Consumer Reports: Background checks often involve obtaining consumer reports or investigative consumer reports from consumer reporting agencies. Consumer reports include factual information on an individual such as their credit history, criminal records, and employment history while investigative consumer reports provide information about the individual’s reputation and character.
  3. Pre-Adverse Action Notice: If an employer plans to take adverse action based on the information in the consumer report, they must provide the affected individual with a pre-adverse action notice. The pre-adverse action notice allows the individual to review the report, identify any inaccuracies, and dispute the information with the consumer reporting agency prior to the employer making any final decisions.
  4. Adverse Action Notice: If the employer takes adverse action after the waiting period (usually at least five business days), they must provide the individual with an adverse action notice. This notice informs the individual that adverse action has been taken and includes specific reasons for the decision, as well as the contact information of the consumer reporting agency.

Consumer reporting agencies must also comply with various FCRA requirements, such as ensuring the accuracy and integrity of consumer information reported, safeguarding consumer report data, and following proper procedures for handling disputes. Employers have additional responsibilities, such as securely disposing of consumer confidential data and certifying that they will not violate other federal and state equal employment opportunity laws. Non-compliance with the FCRA can result in legal consequences, including lawsuits and hefty monetary penalties.

FCRA-Compliant Background Checks

According to a survey by the Professional Background Screening Association, 93% of organizations with a US location conduct some type of background screening. This percentage is expectedly high because background checks are essential to businesses that want to hire top talent while doing their due diligence to protect their assets and workforce.

As we mentioned above, performing background screening comes with FCRA obligations. In the event of non-compliance with FCRA requirements, costly litigation can follow. In a 2021 Webrecon report, the FCRA was found to be the only consumer statute showing consistent yearly increases in consumer complaints.

Here are the best practices we recommend you adopt to comply with FCRA requirements and minimize your legal exposure:

  1. Follow the “Permissible Purpose” for Using Background Checks: If you have an agreement in place with your third-party background screening provider to screen for “employment purposes,” you shouldn’t perform background checks for any other reason.
  2. Provide Proper Disclosure and Obtain Written Consent: Employers must provide a “clear and conspicuous” disclosure to candidates and obtain written authorization prior to performing a background check. There have been many class-action lawsuits centered around non-compliant disclosures. The FTC has provided guidance on how to keep required disclosures simple.
  3. Certify Your Compliance: Prior to obtaining a consumer report, an employer must certify to the consumer reporting agency that they:
    a. Have complied with disclosure and authorization requirements,
    b. Will comply with adverse action; and
    c. Won’t use reports in violation of any applicable federal or state laws.
  4. Maintain and Properly Dispose of Background Check Reports: Employers are responsible for the secure maintenance and destruction of consumer reports. Be sure to store data securely and dispose of the data securely once you’re done with it.
  5. Follow the Adverse Action Notice Process: When adverse action is taken based on the background check, a two-step notification process is required per the FCRA. The first step requires a notice that includes a copy of the consumer report and a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.” The second notice tells the candidate of the final decision and includes necessary contact information.
  6. Include the “Summary of Rights” When Sending Report Copies: Any time a candidate requests a copy of their report, it should be provided securely along with this summary.
  7. Consult with Your Legal Counsel: Speak with your legal counsel to ensure you have proper controls in place to stay compliant with state and federal laws.

Other Federal, State, and Local Considerations

In addition to the FCRA requirements, we want to remind you of other federal, state, and local legal frameworks that often play a role in conducting compliant background checks for employment purposes.

Equal Employment Opportunity Commission Guidance of 2012

In 2012, the Equal Employment Opportunity Commission (EEOC) released guidance for employers on how to perform criminal background checks fairly. It isn’t a law, but rather a resource employers should look to when creating hiring policies and making employment decisions to avoid Title VII discrimination claims. It urges employers to conduct individualized assessments on every candidate.

Ban the Box and Fair Chance Laws

37 states and over 150 cities have implemented laws to help individuals with a criminal record to find their way back into the workplace. These laws often make it easier for people with a criminal record to get hired by banning the box asking if they have a prior criminal history in job applications. Consulting with counsel about your business's operational areas is essential to ensure adherence to requirements.

Credit Reports in Hiring Decisions

Performing credit checks in background checks is restricted in many states. It’s essential to consult with legal counsel or your background screening provider to determine the appropriateness of credit checks based on the role.

Get Compliant Background Checks

Navigating FCRA requirements is vital for employers when conducting background checks and using consumer reports in their hiring processes. The FCRA aims to promote fairness, accuracy, and privacy for job applicants and employees. By adopting best practices and seeking guidance, you can create a culture of background screening compliance while finding the best talent to drive your organization forward.

If you have outstanding questions or want to learn more about how Certn can help, book a call to discuss Certn’s screening packages that make the most sense for your needs.

Written by:

Katie Kulp, VP US Operations & Compliance, Certn

Katie has worked in the background screening industry since 2006 and has been an active member of the Professional Background Screening Association (PBSA). In addition to overseeing Certn’s US operations and compliance, Katie previously Co-Chaired the US Government Relations Committee and is currently serving her second term on the PBSA Board of Directors.