As an Employer, you need to be aware of legal requirements imposed by the Federal Fair Credit Report Act (FCRA), and in some instances, state consumer reporting laws, when using consumer reports for employment purposes. We have provided the following overview of adverse action guidelines required by the FCRA, although we do recommend that you work with your own legal counsel regarding your specific legal responsibilities.
What are the types of reports covered by this law?
Consumer Report – any written, oral or other communication by a consumer reporting agency (such as Ascertain Screening and Investigations) which includes information such as criminal records checks, credit worthiness and standing, character, and general reputation to be used as a factor in establishing a consumer’s eligibility for credit, employment or insurance. (A background report which does not include a credit report is still considered a consumer report.)
Investigative Consumer Report – a consumer report which includes information bearing on the consumer’s character, general reputation or mode of living obtained through personal interviews with friends or associates of the consumer, including current or previous employers, schools or other institutions or business and personal references.
What does the employer need to do prior to taking adverse action taken based on the contents of a Consumer Report (“background check”)?
A notice of pre-adverse action must be provided to the consumer (orally, in writing or by electronic means) along with the following:
- A copy of their Consumer Report, and
- The document, "A Summary of Your Rights under the Fair Credit Reporting Act".
You should allow the applicant an opportunity to review the report and dispute any inaccuracies with the Consumer Reporting Agency (“CRA”), which has an obligation to research and correct any inaccuracies. Although the FCRA does not provide specific guidelines on the required period, we suggest you allow a minimum of seven (7) days before issuing a final adverse action notice.
If you decide to take adverse action, the final Adverse Action notice must then be provided to the consumer, and should contain the following:
- The name, address and toll-free telephone number of the CRA that provided the report
- A statement that the CRA did not make the decision of adverse action and cannot explain why the decision was made.
- A notice of the consumer’s right to dispute the accuracy or completeness of any information furnished by the CRA, and to get an additional free report from the company if the person requests it within sixty (60) days.