What Does FCRA Compliance Really Mean for You and Your Small Business? 25 Jan 2019
If you’re researching background checks, you’ll probably come across the Fair Credit Reporting Act (FCRA). You might see screening companies say they’re FCRA compliant or read about the dangers of violating FCRA guidelines. You may think that this only applies to multi-million dollar companies, but did you know that even small business need to follow FCRA standards?
Yes, all businesses using employment background checks must follow FCRA standards. Breaching the FCRA’s guidelines can lead to lawsuits, civil penalties, and jail time. 422 lawsuits were filed under the Fair Credit Reporting Act in February of 2018 alone.
If you don’t want a lawsuit, then you need to follow FCRA guidelines when running background screenings. To do this you’ll need to answer a few questions, including:
What is the FCRA?
What does it mean to be FCRA compliant?
How can you be FCRA compliant?
Let’s find out the answers to these questions.
What Is the Fair Credit Reporting Act?
The Fair Credit Reporting Act is a set of federal laws that protect people’s information when it is used for credit checks, tenant background checks, or employment purposes. It regulates how businesses can use consumer information, what information they can consider, and allows the consumer to review their own data.
The FCRA was enacted in 1970 because credit reporting agencies were maintaining old, inaccurate, and sometimes fabricated reports on individuals. The reports could include anything from a person’s marital status to their drinking habits or national origin. These reports could be bought by businesses that could deny services or opportunities based on the information. They could also be used in law enforcement cases. The individual had no way to see their report or dispute incorrect information.
The FCRA allowed individuals to see their information and stopped reporting agencies from using false or sensitive information. So, the FCRA is a critical protection for people, but do only consumers benefit from the FCRA? Does it help businesses as well?
Who Does the FCRA Help?
The FCRA primarily protects the applicant that is giving their information. It gives them the right to review information, to know who is running the background check, and to be notified if you make an adverse decision based on the results.
But, the FCRA also helps the businesses involved by requiring them to have a standard way of dealing with applicants’ data. It also requires them to be transparent about their background screening practices. This creates a fair hiring process and helps you find the best applicant for the job. So the FCRA does help employers, but it also requires they follow strict guidelines. What does the FCRA require employers to do?
What Does the FCRA Require for Employers?
The FCRA has strict requirements for employers. Here are some requirements that are often cited in lawsuits.
Stand-alone disclosure form. You need to provide the job applicant with a stand-alone disclosure form stating that you’re running a background check on them.
Consent form. The applicant also needs to provide written authorization through a stand-alone consent form for the background screening. These forms require specific wording and formatting, so you should model them after the FCRA’s model forms. The timing of the employment screening should also be compliant with the Fair Chance Act if applicable in your state.
Adverse action notice. If you are thinking of not hiring someone based on the background check, you must send the applicant an adverse action notice before making the decision. Then you need to give the applicant time to respond. If the applicant disputes the information, you need to take that into consideration.
Second adverse action notice. If you still decide not to hire the applicant after the response time, you need to send a second notice informing them of your decision.
And that’s just what employers need to do. The FCRA has requirements for screening companies as well. What does the FCRA require for screening companies?
What Does the FCRA Require for Background Check Companies?
The FCRA requires screening companies follow all FCRA standards. One of these standards is ensuring their criminal background checks and credit background checks have the maximum accuracy possible. This requires them to verify any information they find. That means companies that claim to give “instant” background check results are not FCRA compliant.
Because FCRA lawsuits tend to name the employer’s company and the background check company in the suit, more background check companies are concerned about following FCRA standards. Reputable background check companies usually have FCRA compliance policies and procedures in place for all their background checks. But why is it so important to be FCRA compliant? What happens if you’re not?
What Happens If I Violate the FCRA?
Violating FCRA standards can lead to different penalties depending on the type of breach and how many times you’ve breached it.
Unknowing violation. If you violate the FCRA unknowingly, you’ll receive a civil penalty in the form of a fine.
Multiple unknowing violations. Every time you violate the FCRA, you could get an additional $100 fine. This means if your forms violate the FCRA and multiple people use them, you could get a fine for every form used.
Willful violations. If you violate FCRA guidelines willfully, you get a civil penalty, and the court can impose additional fines depending on how much damage was done to the applicant.
Running a background check without a permissible reason. The only time you get jail time for violating the FCRA is if you run a background check without a permissible reason. That results in up to two years in federal prison. A background check for employment purposes is a permissible reason under the FCRA.
Since the penalties for breaching the FCRA are so high, how can you follow FCRA standards?
How Can I Follow FCRA Standards?
The FCRA is an extremely technical statute, so you may want a lawyer to look over your documents and hiring process. But in general, this is how you can follow FCRA standards:
Use the right forms. The FCRA requires specific wording and formatting for their forms and disclosures. Use their model forms as an example and have a lawyer look over the forms before you give them to applicants.
Inform the applicant you are running a background check and get their consent. These need to be stand-alone forms with no other information on them.
Give the applicant a copy of the results. Allow them to dispute any false information.
If you’re thinking of making an adverse hiring decision, send the applicant a notice before you decide. Give them five or more days to respond or explain.
If you still settle on an adverse hiring decision, send them a second notice. You should include a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act” and the name of your background check company.
Use an FCRA compliant background check company. They should answer any questions you have about their hiring process. They also need to be able to educate you on how you can comply with the FCRA.
At Trusted Employees, we offer a wide variety of FCRA compliant background checks. We can answer any questions you have about our process and help you find the right background checks for your unique situation. Contact us today to learn more about our background check packages.
Robyn Kunz is the Chief Compliance Officer at Trusted Employees. She has worked in the background screening industry for over 15 years and holds Advanced Certification in the Fair Credit Reporting Act from the National Association of Professional Background.
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