The Fair Credit Reporting Act (FCRA) is a familiar term for employers and companies who routinely conduct background checks as part of their hiring process, and most individuals have undergone Fair Credit Reporting Act background checks for employment at some point in their lives.17
But being “compliant” with this law can be confusing. Because of the complex terms used to define the entities involved in background checks,and recent court rulings that apply to public records, knowing how to prevent fines and punishment for non-compliance may seem overwhelming.
However… anyone can make sure to be compliant in under one minute. Just keep reading.
This article explains all the rules and regulations surrounding the complex Fair Credit Reporting Act and its relevant laws, allowing anyone to learn how to be fully FCRA compliant in 60 seconds or less thanks to examples and one simple trick.
What Is the Fair Credit Reporting Act?
The Fair Credit Reporting Act (FCRA) is a federal law, initially developed in 1970 to protect consumers’ financial information and help consumers address credit report inaccuracies.17 Since the time of its inception, the FCRA has grown to encompass all types of consumer reports.10 The FCRA dictates how an individual’s personal consumer information can be collected and used.13
The language in the legislation extends to cover employers and consumer reporting agencies (CRAs) which are often used to conduct background checks.6
Introduction to Fair Credit Reporting Act and Background Checks (Fair Credit Report Act Background Checks)
What do consumer reports have to do with background checks? A consumer report refers to any personal information collected on an individual (a.k.a consumer) by a consumer reporting agency (CRA) to be used in determining the individual’s eligibility in various domains (employment, rental, loan, etc.).
Consumer reports typically gather information about an individual’s character and credibility by looking at their credit history, residential status, and criminal history, among others.10 In other words, any background check conducted for the purpose of employment, credit, etc. is considered a consumer report and is regulated under the FCRA.24
The FCRA impacts all background checks conducted by employers, as those employers who choose to conduct employment background checks manually are still held to the compliance standards of the FCRA. Thus, many employers elect to hire a third-party CRA to reduce the risk of being sued for non-compliance or discrimination in hiring.13
Employers and CRAs must ensure full compliance with the FCRA throughout the background check process.6
What Is an FCRA Background Check? (What Is a FCRA Check?)
Employers and employees alike may wonder what a Fair Credit Reporting Act background check looks like. There are a few questions to answer in determining whether a background check is, in fact, a FCRA background check.
- What is the purpose of the background check?
If the background check is conducted to determine an individual’s eligibility for a job, a rental, a loan, a credit card, etc., it is a FCRA background check.24 - Who is conducting the background check?
If the background check is conducted by an employer, a landlord, or a consumer reporting agency and is for professional reasons, it is subject to FCRA regulations. - How is the background check conducted?
There are specific, systematic processes which must be followed prior to and after obtaining a FCRA background check. Continue reading to find out more about the FCRA background check process.
What Does an FCRA Background Check Include?
There are several components to a Fair Credit Reporting Act background check which are relevant at different stages in the process.
Prior to obtaining a background check on an individual, the following components must be present:
- Permissible Purpose
- Disclosure
- Signed Authorization
- Federal Trade Commission’s Summary of Rights (sometimes)
There is also a clear process which employers must follow if they determine an individual is ineligible because of a background check. This process includes:
- Preliminary Notice of Adverse Action and FTC Summary of Rights
- Notice of Adverse Action
What Is ‘Permissible Purpose?’
To obtain a FCRA background check from a third-party CRA, a customer must establish a permissible purpose, or in other words, a legitimate reason for needing the information. In the case of employment, “permissible purpose” may be situations such as hiring, retention, and promotion. The CRA should verify “permissible purpose” prior to contracting for the background check.15,22
What Is the Fair Credit Reporting Act Background Check Disclosure?
The Fair Credit Reporting Act background check disclosure form is one of the most important parts of the FCRA background check process. The disclosure is meant to inform a consumer of the intent to procure a consumer report for professional purposes and of the fact that this report may be used to make hiring decisions. The FCRA provides specific direction on how the disclosure form should be designed and presented.
The disclosure should be designed in such a way to make it accessible to all individuals. Thus, it should be “clear and conspicuous,” easy to understand, and free of unnecessarily complicated language.
Additionally, the FCRA mandates that the disclosure be presented to the consumer in a standalone document. In other words, the disclosure cannot be built into or combined with other parts of the application. It must be in a separate document to ensure it is given individual consideration.1,24
What Is the Fair Credit Reporting Act Background Check Authorization?
The background check authorization form is one of two mandatory forms that a consumer must always receive before a background check for professional reasons can be conducted. The signed authorization is a consent form where a consumer acknowledges and grants permission for the background check.24 The authorization form may briefly describe the type of consumer report being sought as well as the way the information may be used.1
When Is the FTC Summary of Rights Included in an FCRA Background Check?
The Federal Trade Commission’s (FTC) Summary of Rights is sometimes included in the information given to a consumer prior to conducting a background check.37 While the disclosure and authorization forms are always required at this stage of the Fair Credit Reporting Act background check process, the Summary of Rights is not.37
The Summary of Rights need only be provided to the consumer at the time of the disclosure and authorization form when an investigative background check is being conducted. An investigative background check is less common than a typical FCRA background check. It goes beyond database searches to include personal interviews with various sources, such as previous employers, neighbors, references, etc.33
The FTC Summary of Rights must always be included along with the pre-adverse action letter post-background check. Read more about this process below.
What Is a Preliminary Notice of Adverse Action?
When a customer decides that a consumer is ineligible for whatever they have applied for (job, rental, promotion) based on information returned in the background check, they must supply the consumer with a preliminary notice of adverse action, or pre-adverse action notice. The pre-adverse action notice informs the consumer of the intent to pursue adverse action (job denial or discontinuation, rental denial, loan denial) because of the background check.
Along with a pre-adverse action notice, the customer (i.e. employer) must provide the customer with copies of the consumer report and of the FTC’s Summary of Rights.9,37
A pre-adverse action notice allows a consumer to review the consumer report and dispute any errors or mistakes within it.9
What Is an Adverse Action Notice?
After the pre-adverse action letter is sent to inform a consumer of the intent to pursue adverse action, employers should allow a reasonable amount of time for the candidate to address any inaccuracies in their consumer report.
One week is typically considered a reasonable amount of time, though it varies by state law. After sufficient time has passed, the employer must inform the candidate of their final decision through an adverse action notice.8
The various areas a FCRA background check examines are determined by the employing company (a.k.a. the customer) and may include any and all of the following:1,13,26
Fair Credit Reporting Act Employment Background Check
The regulations set forth by the FCRA on procurement and use of employment background checks can be very intimidating for employers, particularly as non-compliance lawsuits reach an all-time high.12 While it is not illegal to deny employment based upon information found in background checks, it is crucial for employers to stay up to date on FCRA mandates to avoid litigation.
Fair Credit Reporting Act Criminal Background Check (Fair Credit Reporting Act and Criminal Background Check)
There is some confusion surrounding what can be reported on a FCRA-compliant background check.14 The FCRA does not limit how far back CRAs can go in reporting criminal convictions. However, it does limit how far back CRAs may go in reporting arrests and charges that did not result in a conviction. Per the FCRA, arrests and charges which did not lead to a conviction may only be reported within seven years of the alleged offense.17,24
Note that there is a salary exception for individuals earning more than $75,000 per annum.14
Fair Credit Reporting Act Driving Record Check
Driving records are considered a consumer report under the FCRA because they can reflect upon an individual’s character and reputation.23 Therefore, each and every time an MVR report is ordered for a candidate or current employee, FCRA procedures must be followed.5
Fair Credit Reporting Act Credit Record Check
Credit history checks are common consumer reports requested when investigating candidates for job positions in the financial or business sector. They are also commonly requested when screening potential tenants. Credit record checks are covered under the FCRA and must adhere to FCRA guidelines. An employer must provide evidence to the CRA that their business is credentialed and can legally receive credit information.6
Fair Credit Reporting Act Background Check Requirements
To be fully compliant with a Fair Credit Reporting Act background check, it is essential to know and understand the various elements and requirements of the FCRA.
What Are the FCRA Requirements?
There are various guidelines set forth by the FCRA which dictate the background check process. These steps can be categorized into the following three categories:
- Before a background check
- Before adverse action
- After adverse action
Before initiating a background check on a candidate, there are several important steps that must be taken. The customer (employer, landlord, etc) must provide a disclosure form and an authorization form to every consumer. FCRA law states that the disclosure form must be provided in a standalone document and presented in a simple, transparent fashion.24 In the case of investigative background checks, The Summary of Rights must also be provided at this stage.
When an employer decides that a candidate’s background check makes them ineligible for hire, they must send a pre-adverse action notice informing the candidate of the intention to act on negative findings in the consumer report. For this purpose, adverse action is defined as any decision stemming from the background report which negatively impacts a candidate (refusal to hire, promote, or transfer; refusal to rent; refusal to issue credit). The pre-adverse action letter must be accompanied by the FTC Summary of Rights as well as a copy of the consumer report used in making the determination.
The purpose of the pre-adverse action notice is to alert consumers to something amiss with their background reports so that they may examine the reports for errors.24
After waiting a reasonable length of time for a candidate to dispute a pre-adverse action notice, the employer may proceed with adverse action and should then deliver an adverse action letter. The adverse action letter will guide an individual in how to dispute the findings. It should provide the consumer with the name and contact information of the CRA which conducted the background check, so that they may address any concerns directly. The adverse action letter also informs the consumer that they have a right to a free repeat report upon request within 60 days.10,24
What Triggers FCRA Requirements?
The FCRA aims to protect consumers by regulating the way consumer information is obtained and used. Therefore, FCRA requirements are triggered the moment an employer or other customer requests a consumer report on a candidate.1
What Is a Violation of the Fair Credit Reporting Act?
Any failure to follow the procedures laid out by the FCRA in obtaining and using a consumer report is considered a violation of FCRA law.24 Examples of FCRA violations include failure to:6
- Provide a standalone, transparent disclosure form
- Obtain written consent on an authorization form
- Provide the Summary of Rights prior to investigative background checks
- Inform an individual of the intent to initiate adverse action through a pre-adverse action letter
- Provide a copy of the consumer report along with the pre-adverse action letter
- Provide the Summary of Rights along with the pre-adverse action letter
- Allow a reasonable waiting period (typically five to seven days) for consumers to respond to the pre-adverse action notice
- Provide an adverse action letter informing the candidate that a negative outcome has resulted from the background check findings
Note that some states have additional laws in place to protect consumers. Employers and other customers must be aware of state laws on consumer reports, as well.13
Further note that the Equal Employment Opportunity Commission (EEOC) protects consumers from discrimination in hiring and other domains, and employers must be aware of and compliant with EEOC guidelines as well.13,19,35
Advantages of Using a FCRA Background Check
With the complicated and sometimes confusing nature of FCRA legislation, employers may wonder why they should seek a Fair Credit Reporting Act background check at all. While this is a fair question, there are a plethora of advantages to a FCRA background check which are explored here.
FCRA Background Checks Provide Protection for an Employer
With burgeoning population numbers and ever-increasing job demand, it is crucial for companies to be able to screen employment candidates to ensure the safety of the workplace, employees, and company reputation. A background check helps reduce the risk in hiring an individual (applies to rental and loan applications as well.)13
FCRA Background Checks Are Thorough and Reliable
Manually conducted background checks and instant online background checks run a high risk of incompleteness. With manual background checks, there is not a standardized method for conducting record searches. No two candidates are the same, and some records can be acquired easier than others. Thus, this can create an unfair imbalance in the hiring process, potentially putting certain individuals at a disadvantage.
Instant online background checks are typically quick, name-based searches which may not generate a complete picture of a person.36 Additionally, these background checks are not sanctioned by the FCRA for professional use.
FCRA background checks are conducted by FCRA-approved consumer reporting agencies. CRAs have a system for running background checks which provides more consistent, thorough, and reliable information.
FCRA Background Checks Are the Only Checks Approved for Professional Use
According to FCRA legislation, disclosure to and the written consent of a consumer is required to obtain a background check for professional use.30 Thus, employment background checks must be compliant with all FCRA regulations as well as local and state laws to avoid hefty penalties.3,17
FCRA Background Checks Help Ensure Fair Hiring Practices
When conducting background checks for employment purposes, employers have a responsibility to abide by FCRA regulations. In terms of fair hiring practices, this means that consumers have a right to view and dispute their background check reports.
Employers have an additional responsibility to the Equal Employment Opportunity Commission’s (EEOC) non-discrimination laws.38 The EEOC’s guidelines state that employers cannot automatically disqualify individuals with criminal records without giving individual consideration to each case.24
Conducting an FCRA background check also assists with all federal law compliance and fair hiring.
FCRA Background Checks Reduce the Risk of Litigation
With a FCRA background check, the consumer reporting agency conducting the investigation assumes much of the liability and responsibility for the collection and reporting of consumer information. Because FCRA compliance is crucial to the success of their business, CRAs stay up-to-date on federal laws and FCRA requirements. Thus, contracting with an FCRA-compliant consumer reporting agency helps employers and other customers maintain compliance as well.2,3,13
How To Get a FCRA Compliant Background Check
Considering the multiple advantages to obtaining a Fair Credit Reporting Act background check, it is necessary to understand exactly how to obtain a background check that is fully compliant with the FCRA.
The absolute easiest way to get a fair credit reporting act background check performed is to contract with a certified consumer reporting agency that is approved by the FCRA to issue background check reports.
Customers seeking a consumer report on a candidate without employing a CRA should follow these steps:
Step 1: Look Up State Laws on Professional Background Checks
Many states grant the consumer even more rights than the federal legislation. For example, California restricts the reporting of marijuana offenses and is also one of several states that does not allow arrest records to be reported even within the seven-year time frame.4
Step 2: Become Familiar With FCRA Requirements
Do the research to find out how the FCRA applies to the specific background check (employment, tenancy, etc.) being sought.
Most medium to large companies already have a procedure in place for conducting background screening. Obtaining a FCRA compliant background check may be as easy as following the process already in place.
However, note any questionable policies or practices that may not be FCRA compliant.
Much recent FCRA-related litigation concerns the design and presentation of the disclosure form. Be sure to get the disclosure form up to FCRA standards, and consider having an attorney review it.
Informed consent from the candidate is a necessary prerequisite to obtaining a background check.
Step 6: Identify a Credible Consumer Reporting Agency To Conduct the Check
One way to verify a CRA’s credibility is to look for a National Association of Professional Background Screeners (NAPBS) Accreditation. Ascertain that at least some employees of the CRA are FCRA-certified.34
Step 7: Demonstrate “Permissible Purpose” to the Consumer Reporting Agency Conducting the Background Check
A “permissible purpose” includes reasons such as employment, credit application, tenancy, etc. CRAs must verify that the customer has a permissible purpose for requesting the consumer report before agreeing to the background check.
Step 8: Review the Completed Consumer Report and Make a Decision
After receiving the completed consumer report, review the information carefully prior to making a decision.
Step 9: Send a Pre-Adverse Action Notice if Consumer Report Results in Application Denial
The pre-adverse action notice must be accompanied by the Summary of Rights and a copy of the individual’s consumer report.37 Candidates must receive the CRA’s contact information to dispute inaccuracies directly.
Step 10: Wait Five to Seven Days for Candidate’s Response
Waiting a reasonable five to seven-day period allows the candidate time to initiate any action related to their consumer report.
Step 11: Issue an Adverse Action Letter
After five to seven days, an adverse action letter may be sent along with another copy of the consumer report.
At this point, an FCRA-compliant background check has been conducted!10
How Far Back Do FCRA Background Checks Go?
Many people are curious to know how far back a Fair Credit Reporting Act background check goes. There is not an extremely simple answer to this question, as some information has a restricted lookback period while other information does not. Continue reading for guidance on the FCRA’s 7-year rule.
What Is the Fair Credit Reporting Act 7-Year Rule? (What Is a Fair Credit Reporting Act Criminal Background Check Seven Years?)
According to the FCRA, consumer reporting agencies should not report adverse information dating back further than seven years in most areas, including:
- Paid tax liens
- Civil suits
- Debt collections
- Arrest records
One additional area is restricted to a ten-year limited lookback:
Note that the FCRA does not restrict how far back a CRA can go when investigating and reporting criminal convictions though some states may interpret the law more broadly.4,17
How Long Does an FCRA Background Check Take?
One of the most common questions asked by customers and consumers is “What is the turnaround time for a background check?” Fair Credit Reporting Act background checks are regularly conducted by third-party consumer reporting agencies. While there is some margin of error for return time depending on the depth and breadth of the consumer reports and the effect of individual factors, most FCRA background checks can be completed in less than one week.29
How Does the FCRA Most Directly Affect Employers?
Employment background checks are among the most commonly requested. Because employers have so much at stake with the reputation, productivity, and safety of their company, many employers are highly motivated to ensure the quality of their new employees via background screening.
Thus, the FCRA regulations are a big hurdle for employers especially. Employers are responsible for their own adherence to FCRA requirements as well as the contracted CRA’s compliance. The employer can be sued by the impacted individual for any compliance failure, whether intentional or unintentional.24
FCRA-related lawsuits are on the rise, and many settled cases have resulted in costly outcomes for unsuspecting employers.10
What Is a Reasonable Investigation Under the FCRA?
When an individual receives a pre-adverse action notice or an adverse action notice along with their consumer report, they may examine the contents of the report for errors or inaccuracies. The individual in question may decide to dispute the findings of the background report.19
The FCRA requires CRAs and the agencies which furnish information to the CRAs to carry out “reasonable investigations” into consumer disputes. What constitutes a “reasonable investigation,” according to the FCRA?
When a consumer reporting agency receives a consumer’s dispute, they must conduct another investigation of the disputed information. The reinvestigation is allotted a 30-day window. Within five days of receipt, the CRA must also send the report to the furnisher (provider) of that information so that the furnisher may also conduct an investigation.*
The furnisher should then examine all the relevant information to determine if the original findings were accurate or erroneous. If the information cannot be verified, the furnisher is required to correct the record by deleting or blocking the information from being reported and providing correct, updated information to each and every CRA that received an inaccurate report.18,32
While this is considered a reasonable investigation under the FCRA, sources indicate that few furnishers actually conduct reasonable investigations by this definition.18,31
As the FCRA seeks to protect consumers from unwarranted duress and discrimination in hiring, laws and decisions about how FCRA can be applied are constantly evolving. Knowing how to stay compliant with Fair Credit Reporting Act background checks just involves knowing and understanding your responsibilities or contracting with a certified CRA to conduct the screenings, ensuring full compliance.
Frequently Asked Questions About Fair Credit Reporting Act Background Checks
