What is the Fair Credit Reporting Act (FCRA)?

The Fair Credit Reporting Act (FCRA) is a federal law (15 U.S.C. § 1681 et seq.) that regulates the collection, dissemination, and use of consumer information, including consumer credit information. Almost any type of background check that an employer requests from C3 Intelligence to be used in the hiring process is considered a consumer report. In addition, C3 Intelligence is considered a Consumer Reporting Agency. Employers must follow all FCRA requirements to remain in compliance. This page will provide a summary of information that is helpful to employers when using consumer reports for employment purposes.

What is a “Consumer Report”?

According to the FCRA, a consumer report is “any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for…employment purposes.” Employment purposes may include hiring, promotion, reassignment or retention.
In addition to consumer reports, there is another type of report called an investigative consumer report. An investigative consumer report “means a consumer report or portion thereof in which information on a consumer’s character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on or with others with whom he is acquainted or who may have knowledge concerning any such items of information.” Examples of this type of consumer report are personal references or employment verifications that include information related to the employee’s performance, attitude, character, etc.
As you can see, the FCRA not only governs credit information, but also other consumer reports such as criminal court records, driving records, and employment verification. Adherence to these federal rules, as well as any state variations, is not optional.

Requesting Consumer Reports

Before a consumer reporting agency such as C3 Intelligence may provide or prepare a consumer report for an employer, it must obtain certification from the employer that the employer:

• • provided the required disclosure to the applicant/employee
  • received written permission to obtain the report
  • will not use the information in violation of any applicable equal employment opportunity law or regulation, and
  • will abide by the requirements stated before taking any adverse employment action.

C3 Intelligence will obtain certification from each end-user/client during the account setup process, and as each new order is placed all the requirements will be adhered to. We will also determine what the end-user’s permissible purpose is for requesting consumer report, which, in this case, is employment purposes. Reports may be acquired and used for no other reason than the stated permissible purpose.

In addition, we must provide each end-user/client with a copy of the “Notice to Users of Consumer Reports.” Each client should read and be familiar with the contents of this document.

Before an employer may obtain a consumer report or cause one to be prepared, it must disclose to that person in writing that such a report may be obtained and secure the person’s written authorization. This written disclosure must be contained in a separate document used solely for that purpose, and it may not simply be included on an employment application or in an employee handbook. Per the FTC, the disclosure and written authorization may be included in the same document.

If an employer wishes to obtain an investigative consumer report, it must follow the requirements discussed above with respect to consumer reports and meet the following additional requirements:

• • An employer must advise the employee or applicant in writing that an investigative consumer report may be requested no later than three days after the report is requested.
  • It must advise the employee or applicant that the report may include information as to his/her character, general reputation, personal characteristics and mode of living.
  • It must advise the employee or applicant that, on written request, it will provide additional information, including a “complete and accurate disclosure of the nature and scope of the investigation requested” and a copy of the employee or applicant’s summary of rights under the law. If the additional disclosure is requested by the employee within a “reasonable period of time,” this information must be provided by the employer in writing and delivered (personally or by mail) no later than five days after receipt of the request or five days after the report is ordered, whichever is later.

C3 Intelligence will provide each end-user with FCRA-compliant forms that may be used to procure consumer and/or investigative consumer reports on applicants/employees. When utilizing our electronic QuickApp report ordering process, all the required forms and disclosures will be sent directly to the applicant without the need to distribute any paper forms.

Adverse Action

An “adverse action” in the context of a background check refers to any action an employer takes that negatively impacts a job applicant’s employment prospects based on information discovered during a background check, such as denying employment or offering a lower position, and requires the employer to follow specific legal procedures under the Fair Credit Reporting Act (FCRA) to notify the applicant before making a final decision.

The FTC has taken the position that the legislative history of the FCRA clearly anticipates that this notice will be accompanied by an opportunity to clear up any errors in the report. The FCRA, however, does not require employers to refrain from taking any action based on a negative report once the notice has been given.

Step 1: Send Pre-Adverse Action Notice

A pre-adverse action notice informs the candidate that based on information from their background check, you are considering not moving forward with the employment process. It must be accompanied by a copy of the background check report and the standard document, “A Summary of Your Rights Under the FCRA.”

Some state and local laws (based on the candidate’s or employee’s work location) may require additional disclosures and documentation, such as summarizing state law rights or identifying the criminal record(s) that may result in adverse action.

Step 2: Waiting Period

Once you’ve sent the pre-adverse action notice, you must allow the candidate a “reasonable” amount of time, considered a waiting period, to respond. This gives the candidate a chance to review the background check report and dispute any information they believe is inaccurate or outdated or provide evidence of rehabilitation or additional information to consider.

The FCRA doesn’t specify what constitutes reasonable, but 7 calendar days is generally considered an adequate waiting period. However, some states and jurisdictions impose longer waiting periods.

Step 3: Review Candidate’s Response

After giving the candidate time to respond, you’ll need to review their response and reconsider any information in the background check report that’s been corrected. If they have disputed information, it pauses the adverse action process to allow the consumer reporting agency (CRA) time to investigate and resolve the dispute.

If you determine it is still appropriate to move forward with adverse action despite the information provided by the candidate or if the candidate does not dispute the report by the end of the waiting period (or the dispute did not result in an updated report), then you can send the post (or final) adverse action notice.

Step 4: Send Final Adverse Action Notice

Should you decide not to move forward with employment, you’ll need to send a final adverse action notice informing the candidate of your decision. By law, this adverse action notice must inform the candidate of their right to dispute the decision and notify them that they are entitled to another free copy of their background check report within 60 days.

If the background check was conducted through a third-party, such as a CRA, the final adverse action notice must also include:

• • Name, address, and phone number for the CRA that conducted the background check;
  • A statement that the hiring decision was made by the employer, not the CRA. Therefore, the CRA cannot provide reasons why adverse action was taken.

Step 5: Properly Dispose of Sensitive Documents

A best practice is to keep a copy of all adverse action notices and attachments, and a record of when these communications were sent. Should you decide to later discard them, federal regulations subject employers to the Disposal Rule. This means that background check results should be disposed of in a secure manner which includes shredding, pulverizing, or incinerating paper documents and permanently erasing digital copies so they can not be read or reconstructed.

Other requirements

Employers may be subject to additional adverse action requirements under state or local fair hiring or Ban the box laws. These requirements may dictate the timing for conducting an individualized assessment, mandating a rewritten reassessment, identifying the record for which the decision was based, and more. Employers are responsible for understanding the rules and regulations applicable to them.

At a nominal fee, we can complete the process and assure you that every step in the compliance procedure will be taken.

FCRA Links

Fair Credit Reporting Act (FCRA) – full text

Fair and Accurate Credit Transactions Act (FACT Act) – full text. The FACT Act is a 2003 amendment to the FCRA.

State Consumer Reporting Laws

In addition to the federal FCRA, employers must also be aware of state consumer reporting laws that govern the use of consumer reports. Many states have enacted legislation regarding consumer reports that may be more restrictive than federal law. We suggest you consult your legal counsel to determine if your policies and procedures are compliant.