How to Avoid Getting Sued Over FCRA Violations - American Society of Employers - Nicole Sitter

How to Avoid Getting Sued Over FCRA Violations

Staying compliant with the Fair Credit Reporting Act (FCRA) while running background checks is pretty straight forward.  There are rules that must be followed before they are run, after the information has been obtained, and once an applicant has been denied a position.  The rules are very easy to follow, yet some companies are still being drawn into lawsuits and paying out massive settlements due to non-compliance with the FCRA.  While the rules and steps to staying compliant may seem like a proverbial “beating of a dead horse,” the Equal Employment Opportunity Commission (EEOC) does not back away from companies that are non-compliant.  Home Depot, Amazon and Whole Foods are just a few of the recent large employers to reach massive settlements with applicants and employees after being sued by the EEOC.  Protect yourself and know the rules.

The FCRA requirements apply to all Consumer Credit Reports obtained by employers and are defined by the 15 U.S. Code § 1681a - Definitions; rules of construction.  A Consumer Credit Report is defined as 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:

·       Credit or Insurance

·       Employment Purposes

·       Any other purpose authorized under section 1681b

Employers often misunderstand the term “Consumer Credit Report” due to the use of the word “credit.”  It’s a very common misconception that employers do not have to follow the FCRA if they are not ordering credit checks or credit reports on their applicants. This often leads to non-compliance of the FCRA.  Any employer that uses a third party Consumer Reporting Agency, such as the American Society of Employers, must follow the FCRA no matter what they order in their background checks.  All employment verifications, education verifications, reference interviews, criminal searches, etc. supply information about an applicant’s character, general reputation and personal characteristics.

Before a background check is ordered, the following must be completed in order to stay compliant with the FCRA:

·       The applicant must sign a “clear and conspicuous disclosure,” a stand-alone document stating that they are aware that the information obtained in a consumer credit report may be used in the hiring decision. 

·       If the consumer credit report will entail investigative information such as personal references who speak to the applicant’s reputation and character, the employer must inform the applicant by supplying a general overview of what might be obtained in the report.

·       The applicant must sign a stand-alone authorization before the consumer credit report can be obtained.  If the applicant’s consumer credit report will be obtained multiple times over their employment, it must be clearly stated in the document. 

The requirements set forth by the Fair Credit Reporting Act do not end once the applicant has signed these documents.  They continue into and beyond the hiring decision.  If the applicant or employee is to be denied the position or terminated based on information found in the consumer credit report, the FCRA requires the following:

·       The employer must provide a Pre-Adverse Action notice to the applicant or employee with a copy of the full Consumer Credit Report, as well as a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.”

After the adverse employment action is taken, the employer must inform the employee of the following:

·       Notice that the employer rejected them for the position because of information found in their Consumer Credit Report

·       All contact information for the company that compiled and sold the consumer report to the employer along with notification that said company in no way made the adverse hiring decision and cannot provide an explanation for it

·       That they have the right to dispute the information on the report should they find it to be inaccurate, and they have the right to obtain a free report from the company that compiled and sold the consumer credit report for 60 days

If you follow the above guidelines, you should remain in compliance with the FCRA.  Straying from them will put your organization at risk.  Be sure to utilize reputable sources for all background checks.  Too often incorrect information and the mishandling of it is what triggers an investigation.

Sources: linkedin.com/pulse, 15 U.S. Code § 1681a - Definitions; rules of construction

ASE offers complete background screening servicesFor more information contact Nicole Sitter at 248.223.8058.

 

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