The FCRA Processes You Need to Know

//The FCRA Processes You Need to Know

The FCRA Processes You Need to Know

When it comes to background checks, there’s a whole litany of laws, guidances and regulations you need to be aware of. But the granddaddy of them all is the Fair Credit Reporting Act, aka the FCRA. Though other laws limit how you can use background checks, the FCRA is really the one Act to rule them all. It establishes everything from the definition of a consumer report and a consumer reporting agency to the basic obligations of users of consumer reports.

Though the FCRA places a lot of limitations on background checks for employment purposes, two in particular seem to be trickier than others – namely the authorization and disclosure process and the adverse action process.


How to Properly Provide Disclosure

To be fair, the FCRA almost feels like it was designed to stump people on the disclosure. Section 604 requires that employers make a “clear and conspicuous disclosure” in writing to the consumer before ordering a report, and that the disclosure is the only item in that document. That’s pretty straightforward. However, the FCRA then goes on to say that the consumer has to authorize the report in writing, and that the authorization may also be included on the disclosure document.

So, to recap, the document telling the consumer that you’re obtaining a report must be kept separate from everything else, except that it can also be combined with the authorization.

Now, the authorization has no limitations on what it can be presented with. If you wanted to combine it with, for instance, an agreement to arbitrate disputes, you’d be within your rights to do so.

The problem comes when people combine the authorization with something else, and then – forgetting that, or thinking that it still just counts as the authorization – combine the enhanced authorization with the disclosure. At that point, you’re combining the disclosure with the something else, and that’s not legal. In fact, it has led to a number of very costly class action lawsuits.

So, though you are technically allowed to combine the disclosure with the authorization, best practice is to just keep the disclosure as its own document. It’s a restrictive way to interpret the law, but it’s really just easier in the long run.


The Right Way to Do Adverse Action

Much like disclosures, adverse action is an area where employers frequently get it wrong, to the tune of millions of dollars, courtesy of a class action suit. It’s certainly a more involved process than the disclosure is, but it’s easy enough to get right if you remember a few things.

First and foremost, adverse action is broader than a lot of people realize. It’s not limited to choosing to fire or not to hire someone. If you opt to not promote someone, or not extend their contract, or take any other decision that negatively affects their income, it’s considered adverse action.

Second, the process starts with a pre-adverse-action notice before you make an adverse decision. Waiting to send the letters until you’re certain is directly counter to the FCRA.

If you think you may take an adverse action against an individual based in whole or in part on a background report, you must send a notice to the consumer which includes a copy of the report, a statement of the consumer’s rights, guidance on how to dispute the result, and more.

You have to give the individual time to dispute the report – typically at least 5 business days. If they choose to dispute the report, you must temporarily suspend the adverse action process until your background screening company finalizes their result, which they legally have 30 days to do. If the dispute results in a change to the report, you should consider the candidate anew. If, after the waiting period has elapsed, you still choose to take the adverse action, you should send the candidate a final adverse action notice. The final adverse action notice should notify the applicant of the decision not to hire/promote/contract with them and should notify them of their rights.

By | 2018-05-10T13:03:37+00:00 May 7th, 2018|Compliance|0 Comments