FCRA Compliant Background Checks: An Employer’s Guide

Last Updated:
March 16, 2023

In today’s ultra-competitive job market, you'll often find employers using background checks as a routine part of their hiring process to ensure they are hiring the most qualified and trustworthy candidates -- and to make sure you really are who you say you are.

It's important to know, however, that the Fair Credit Reporting Act (FCRA) imposes strict regulations on the use of consumer reports, including background checks, to protect individuals’ privacy and ensure fairness and accuracy in employment decisions.

To these ends, employers go to great lengths to understand and comply with FCRA regulations to avoid costly legal actions and reputational damage. This article provides employers with a comprehensive guide on conducting FCRA-compliant background checks, including the requirements and best practices for pre-employment and post-employment screening.

Understanding FCRA Compliant Background Checks

FCRA-compliant background checks are investigations conducted by an employer or a third-party consumer reporting agency (CRA) to gather information on a job candidate’s criminal history, credit history, employment history, and other relevant factors. 

The FCRA regulates the use of consumer reports and investigative consumer reports, including background checks, to ensure that employers and CRAs respect the privacy and rights of job candidates.

To be FCRA compliant, background checks must meet several requirements, including obtaining written authorization from the job candidate, providing a clear and conspicuous disclosure, ensuring the accuracy of the information gathered, and following the adverse action process if an employer decides to deny employment based on the results of the background check.

Employers must also be aware of the consequences of non-compliance with FCRA regulations, which can include legal action and damage to their reputation. CRAs can also be held liable for violations of FCRA regulations, making it essential for employers to work with reputable and experienced screening providers.

FCRA-compliant background checks are critical to ensure employers make informed and legal hiring decisions while protecting job candidates’ privacy and rights. By following FCRA regulations, employers can minimize their risks and ensure fair and accurate background checks.

FCRA Compliance: The Basics

To ensure FCRA compliance in the hiring process, employers must understand the basics of the act, the role of CRAs, and their responsibilities to both CRAs and job applicants.

The Role of Consumer Reporting Agencies

CRAs are organizations that collect and disseminate consumer information to businesses, including employers. When conducting background checks, employers often rely on CRAs to provide them with accurate and up-to-date information on job applicants.

Furthermore, CRAs are responsible for ensuring that the information they provide is accurate and obtained for permissible purposes. They must also maintain strict compliance with the FCRA.

Permissible Purposes for Obtaining a Background Check

Under the FCRA, employers may request background checks on job applicants for specific, permissible purposes. These purposes include:

Employment: Employers can use background checks to make informed hiring decisions and ensure workplace safety.

Promotion or Reassignment: Employers may use background checks when considering existing employees for promotions, transfers, or reassignments.

Retention: Employers may use background checks to determine whether to retain an employee, especially if new information arises that could affect the employee’s position.

While employers have the right to use background checks for these and other permissible purposes, they must abide by certain guidelines. 

Responsibilities of Employers under the FCRA

Employers have several obligations under the FCRA when obtaining and using background check information:

Disclosure: Employers must clearly and conspicuously disclose to job applicants, in writing, their intention to obtain a background check.

Consent: Employers must obtain written consent from job applicants before requesting a background check.

Certification to the CRA: Employers must certify to the CRA that they have complied with the disclosure and consent requirements and will use the information only for permissible purposes.

Adverse Action: If an employer intends to take adverse action based on information from the background check, they must follow specific FCRA procedures to notify the applicant and provide them an opportunity to dispute any inaccurate information.

By understanding these basics of FCRA compliance, employers can conduct background checks in a fair and lawful manner, minimizing the risk of legal complications and ensuring a safe and productive work environment.

FCRA Compliant Background Check Process

The FCRA outlines a specific process that employers must follow when conducting background checks to ensure compliance with the law. The following are the essential steps of an FCRA-compliant background check process:

Notification and Authorization

Before conducting a background check, the employer must provide clear and conspicuous disclosure to the job candidate that a background check will be conducted. 

The disclosure must be in writing and separate from any other documents. The job candidate must also provide written authorization for the employer to conduct the background check.

Obtaining Consumer Reports and Investigative Consumer Reports

The employer must obtain consumer reports and investigative consumer reports from a CRA that complies with FCRA regulations. The reports must be relevant to the position for which the job candidate is being considered.

Disclosure of the Results of the Background Check

If the employer intends to deny employment based on the results of the background check, they must provide a copy of the report to the job candidate and a copy of the “Summary of Your Rights under the Fair Credit Reporting Act.”

The job candidate must be given a reasonable opportunity to dispute the accuracy of the report before the employer makes a final hiring decision.

The Adverse Action Process

If the employer decides to deny employment based on the results of the background check, they must follow the adverse action process outlined in the FCRA. 

This process includes providing the job candidate with a pre-adverse action notice that includes a copy of the report and a statement of rights under the FCRA. Again, the job candidate must be afforded the chance to dispute the report’s accuracy.

Record Retention and Disposal

The employer must retain all records related to the background check for at least five years. The records must be securely stored and disposed of in a manner that protects the confidentiality of the job candidate’s information.

Employers who follow these steps can ensure that their background check process is FCRA-compliant, and that they are making informed and legal hiring decisions while protecting the job candidate’s privacy and rights.

Pre-Employment Screening and FCRA Compliance

To make sure that job candidates are qualified and reliable, pre-employment screening is a common practice for employers. However, to comply with FCRA regulations when conducting such screenings, the following best practices should be followed:

Ensure Written Authorization

Employers must obtain written authorization from job candidates before conducting a background check. The authorization must be clear and conspicuous, and separate from any other document.

Limit the Scope of the Background Check

Employers must ensure that the scope of the background check is relevant to the position for which the job candidate is being considered. The background check should not include any information that is not job-related.

Use a CRA that Complies with FCRA Regulations

Employers must work with a CRA that complies with FCRA regulations. The CRA must provide accurate and up-to-date information and ensure that the job candidate’s privacy rights are protected.

Provide a Clear and Conspicuous Disclosure

Employers must make it unmistakably clear to the job applicant that a background investigation will take place. The disclosure should be provided in writing and presented separately from any other documents.

Give Job Candidates an Opportunity to Dispute the Accuracy of the Report

If the employer intends to deny employment based on the results of the background check, the job candidate must be given a reasonable opportunity to dispute the accuracy of the report before the employer makes a final hiring decision.

Be Aware of Local Laws

Employers must be aware of local laws that regulate background checks, as some states and cities have their own regulations that may be more restrictive than FCRA requirements.

To ensure that they are making lawful hiring decisions while protecting a job candidate’s rights and privacy, employers must adhere to these practices during the pre-employment screening process in order to remain FCRA compliant.

It’s worth noting that these standards and practices apply to post-employment screening, as well. Employees must be given the same courtesies if you choose to screen them.

Common Mistakes Employers Make When Conducting Background Checks

It’s important for employers to exercise caution when running background checks on potential employees. However, mistakes can be made during this due diligence process. Here are some of the most common mistakes employers make during credit checks: 

Failing to Obtain Written Authorization

To guard against potential FCRA violations and legal disputes, employers must always ensure they have written authorization from job candidates or employees before conducting any background checks. 

Failing to do so can lead to costly errors that could easily be avoided with the simple step of obtaining written permission prior to running a background check.

Using Outdated or Inaccurate Information

Employers must ensure that information acquired from background checks is accurate and current. Using incorrect or out-of-date data can lead to legal disputes, as well as harm the employer’s reputation. 

To prevent such a mistake, employers should collaborate with trustworthy consumer reporting agencies, which supply precise and up-to-date details.

Including Irrelevant Information

To protect themselves from legal issues and maintain a good image, employers must remain mindful of the type of information they are requesting when conducting background checks on job candidates or current employees. 

The scope should be pertinent to the role in question so that unimportant details won’t leave them exposed to possible disputes or reputational harm. By limiting the inquiry to only what is necessary for employment purposes, businesses can ensure their safety.

Failing to Provide a Clear and Conspicuous Disclosure

It is of the utmost importance for employers to provide a visible and explicit disclosure that they will be conducting a background check on job seekers or employees. 

Neglecting to do so can result in legal action against them due to violating the FCRA, but this easily avoidable mistake can be avoided simply by providing a separate document with an obvious disclosure detailing their plans.

Ignoring the Adverse Action Process

If an employer needs to deny employment or take any negative action against a potential employee due to the results of their background check, they must adhere to the Federal Credit Reporting Act. This act outlines all necessary procedures for adverse actions.

To stay compliant with FCRA regulations and prevent potential legal disputes, employers must remember to adhere to the adverse action process. This involves providing those affected by an unfavorable report with their rightful notices and opportunities for dispute resolution. Failing to abide by this crucial step can have dire consequences—don’t let your business be one of them!

Steering clear of these frequent errors, employers may conduct FCRA-compliant background checks in order to make legally-binding hiring decisions and uphold the job candidate’s or employee’s privacy rights.

Navigating State and Local Background Check Laws

In addition to complying with the Fair Credit Reporting Act at the federal level, employers must also be aware of and adhere to state and local background check laws. These laws can vary significantly across jurisdictions, and they often impose additional requirements or restrictions on employers. 

Understanding these jurisdiction-specific requirements is crucial to maintaining full compliance and avoiding potential legal issues.

Failing to comply with state and local background check laws can result in fines, penalties, and potential legal action. Employers must be diligent in understanding the requirements in their specific jurisdiction, as well as any jurisdictions where they have employees. This includes staying informed about any changes to the laws, as they can be amended or updated regularly.

To remain up-to-date on state and local background check laws, employers can utilize the following resources:

Legal Counsel: Consulting with an attorney who specializes in employment law can help employers understand their obligations and stay informed about any changes in state or local laws.

Government Websites: State and local government websites often provide information on background check laws and regulations. Employers should periodically review these websites for updates and guidance.

Professional Organizations: Employers can join industry-specific professional organizations or human resources associations that provide resources, training, and updates on changes in background check laws.

CRA Compliance Assistance: Reputable CRAs can help employers navigate state and local background check laws by offering guidance and ensuring that their services are compliant with jurisdiction-specific requirements.

Taking the necessary precautions to understand and comply with state and local background check laws can ensure that your practices remain compliant while avoiding potential legal issues and protecting your business.

Let Fair Credit Help with Errors on Your Credit Report

If you believe that you have errors on your credit report, contact Fair Credit. Our team of experts can help you navigate the system and ensure that your credit reports are accurate. We also offer a range of other services, including background checks and tenant screening. Contact us today to learn more!

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