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FCRA: How to comply with background-check rules

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in Employment Background Check,Firing,Hiring,Human Resources

THE LAW. The Fair Credit Reporting Act (FCRA) regulates how your company performs background checks on job applicants. Contrary to popular belief, this federal law doesn't just cover credit checks. It covers any background report, such as driving records and criminal histories obtained from a "consumer-reporting agency."

Under the FCRA, you're typically free to conduct background checks and use the information as long as you retain a clear business interest, such as hiring, firing, reassigning or promoting someone.

But you can't run a background check at whim. You must receive written permission before obtaining the report. Then, if you decide to act on it (fire the worker or reject the applicant), you must tell that person in writing that you based the decision, in part, on the background check.

In some cases, background checks are mandated, such as for certain health care workers and security officers, or as a condition of obtaining bond coverage for your workers. The U.S. Federal Trade Commission (FTC) enforces the FCRA.

WHAT'S NEW. Two trends are leading to more background checks:

First, today's atmosphere of tighter immigration policies and terrorism threats cause companies to look deeper into applicants' histories.

Second, a growing number of court decisions include rulings that companies have a "duty of care" to protect their workers and customers from a worker the company knew, or should have known, posed a security risk. For example, say your new employee assaults a customer and a background check would have revealed that worker's violent nature. In such a case, you could be held liable for negligent hiring.

HOW TO COMPLY. Before obtaining a consumer report on an applicant or employee, you must:

1. Notify the person in a separate, written disclosure that you may obtain a report about his credit record for employment purposes. This can be a separate piece of paper stapled to the job application.

2. Obtain written employee authorization before ordering the report.

3. Provide employees with a summary of their rights under the FCRA.

If you rely on the resulting information to make a job-related decision, specifically a firing or refusal to hire , you have two responsibilities:

1. Before taking action, give the worker a "pre-adverse action disclosure" that includes a copy of the credit report and a copy of an FTC document titled "A Summary of Your Rights Under the Fair Credit Reporting Act." The consumer-reporting agency (CRA) that provided the report gives you this summary. Or you can find it at www.ftc.gov/bcp/conline/edcams/fcra/ summary.htm.

2. After taking action, you must give the applicant notice, either orally, in writing or electronically, that you did so. Include the name, address and phone number of the CRA that supplied the report, a statement that the CRA did not make the decision to take the adverse action and a notice of the applicant's right to dispute the information's accuracy. The person also has the right to an additional free consumer report from the agency upon request within 60 days.

Key point: If the consumer report is a factor in any part of your decision, even if it isn't the major consideration, you must follow those steps.

Also, don't hold it against the person if the credit report shows that he filed for bankruptcy. Under federal bankruptcy law, it's not a valid reason to deny employment, and you can't discriminate against an applicant because of it.

What about when you check an applicant's records by calling his past employers? Does that count as an official credit check covered by the FCRA? That depends on who does the checking. The law does not cover a reference verified by the employer, but a reference checked by a reference-checking agency is covered.

Resources: Fair Credit Reporting Act 

  • The FTC's main FCRA site: www.ftc.gov/os/statutes/fcrajump.htm 
  • An explanation of employer obligations under the law: www.ftc.gov/os/statutes/ 2user.htm 
  • For a description of state FCRA laws, go to www.toolkit.cch.com/text/ P05_1585.asp or www.providerssource.com/state_fcra_laws.htm


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