Q & A: FCRA’s Pre-Adverse & Adverse Action Process 19 Mar 2017
Definition of Pre-Adverse And Adverse Action Notices: In the hiring process, adverse action means that a company is considering not hiring the applicant. Adverse Action is an action companies take based on the information in a background check report that negatively affects applicant’s employment. This could mean denying employment, but can also imply denying a promotion or transfer. Pre-Adverse And Adverse Action Notices are processes that inform the applicant that the company is considering not moving forward with the employment process.
Have you ever run a background check on an applicant and gotten back negative information? What did you do? Many of you might feel that the question is a no-brainer. What would anyone do? Wouldn’t you reject the applicant and move on to the next candidate? If you do, you are risking a lawsuit. Wait. What?
If you are like most employers, you used a third-party Credit Reporting Agency (CRA). If you did, then guess what? You have to follow the Fair Credit Reporting Act (FCRA). There are three basic steps you must follow. We already wrote about the first one here. Now, we’re going to discuss Steps #2 and 3 – the Pre-Adverse and Adverse Action Notices. Below are our answers to questions we encounter the most.
Question: I know you just said we’re supposed to follow the Fair Credit Reporting Act, but what is it? I mean wouldn’t it apply to credit checks only?
Answer: We’re glad you asked that question. It’s always good to know something about the law you are being told to obey. The Fair Credit Reporting Act (FCRA) is a federal statute that was enacted to promote the fairness, accuracy and privacy of consumer information.
Question: So what’s a Consumer Reporting Agency?
Answer: The FCRA defines a Consumer Reporting Agency (CRA) as “any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.” Read our article entitled “Beware of the non-FCRA Online Background Screening Company” to learn more!
Question: What is a Pre-Adverse Action Notice?
Answer: Before you take an adverse action against an applicant based on negative information in their background report, you have to send them a letter. The letter tells the applicant that you may need to take an adverse action (more on that in a minute). This letter is known as the Pre-Adverse Action Letter (or Notice). Along with that letter, you must also send a copy of the background report and a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.”
Question: Once I send a Pre-Adverse Action Notice with the report and the Summary of Rights, can I go ahead and reject the applicant?
Answer: Not yet. You must give the applicant time to dispute accuracy or completeness of the information in the report.
Question: According to FCRA, how much time is reasonable?
Answer: Funny you should ask that. The FCRA itself does not say how much time is “reasonable.” However, the Federal Trade Commission (FTC) which, along with the Consumer Financial Protection Bureau (CFPB) enforces the FCRA, says that a minimum of 5 business days is reasonable. Some courts will say 10 days. Your own state, municipality or county may have a law that speaks to this point further, so always check there as well.
Question: Why is giving an applicant “reasonable time” to dispute the background check required?
Answer: One likely reason is to prevent an applicant from suffering an adverse employment action based on inaccurate information in the background check. The applicant has an opportunity to provide some evidence that the information is wrong. If the applicant is otherwise qualified for the job, he/she should not be subjected to adverse employment action based on inaccurate information in applicant’s background check.
Question: What if the applicant claims the information in his report is wrong, but offers no proof?
Answer: The law says you have to provide the applicant an opportunity to explain/refute the information. You also have to let the applicant to file a dispute with the CRA. It does not prohibit you from rejecting the applicant if you find his explanation insufficient. Any claims of inaccuracy will be investigated by the CRA that reported the information. If the CRA finds any errors, you will be provided with an updated copy of the applicant’s background check.
Question: You have used the term “adverse employment action” a few times. Aren’t you really just talking about rejecting an applicant?
Answer: Not necessarily. Adverse employment actions can also include terminations, or refusing to promote or transfer someone. If you run a staffing agency, and are placing temporary employees in certain positions with specific clearance requirements, you might have a candidate whose background check does not meet those requirements, but who could still be qualified for other placements. You are not refusing to hire that candidate, but you cannot place him/her in the position for which the applicant was originally considered. That too, is an adverse employment action within the meaning of the FCRA.
Question: Does the Pre-Adverse Action Notice have to be in writing and include Summary or Rights?
Answer: Technically, no, but we strongly recommend it. If you merely give the applicant the same information orally, you may have trouble proving that you complied with this part of the FCRA. Why would you want to take that risk? In our opinion, it is worth the few extra minutes and the postage to send a letter, along with the copy of the report and the Summary of Rights. Don’t forget, you must give the applicant the report copy and Summary of Rights notice even if you provide the pre-adverse action notice orally.
Question: I’ve sent the Pre-Adverse Action Notice, with the report and the Summary of Rights, and, after 5 business days, I’ve had no response. Can I go ahead and reject the candidate now?
Answer: Yes. But, you still have another step you must follow or you will be in violation of the FCRA. You must now send an Adverse Action Notice.
Question: OK, what is the Adverse Action Notice?
Answer: Compared to the Pre-Adverse Action Notice, The Adverse Action Notice is the last of the three steps you must take to be in compliance with the FCRA. If, after a reasonable amount of time, your candidate has not appealed the Pre-Adverse Action Letter or provided reasonable explanation of the information in the report, you must provide written notice, containing the following information:
– Statement that the adverse action is based either in whole or part on information contained in the background report provided by the CRA;
– Notice of applicant’s right to dispute the accuracy or completeness of the provided information;
– Name, address, and toll free telephone number of the CRA you used;
– Statement that the CRA supplying the background report had no hand in the decision to take adverse action and cannot give specific reasons for it;
– Notice of applicant’s right to another free consumer report. This is provided upon request of the CRA within 60 days.
Remember, you must – and at the same time, may only—provide the Adverse Action Notice after you have followed the Pre-Adverse Action process and given the candidate reasonable opportunity to dispute information contained in the report. While, technically, the Notice could be given orally, in order to provide proof of FCRA compliance, you need to provide written notice.
Question: What’s the difference between a Pre-Adverse and Adverse Action Notices?
Answer: In truth, not much. The only real difference is that the Pre-Adverse Action Notice tells the applicant that you plan to or may reject him/her (or take other adverse action) based on information in the report. However, the Adverse Action Notice advises that you have made a final decision to do so.
Question: Aren’t the Pre-Adverse Action and Adverse Action Notices redundant? Do I really have to do both steps?
Answer: Yes, you must do both. The FCRA requires both steps. Also, courts deciding FCRA cases have allowed damage awards well into the millions of dollars for these seemingly technical violations. Please refer to our discussion of why the Pre-Adverse Action Notice is mandatory. Interestingly enough, that same reason applies to providing the Adverse Action Notice.
Question: What happens if an applicant decides to dispute information contained in the report?
Answer: The applicant would file a dispute with the CRA that provided the report. The CRA then takes steps to investigate.
Question: How long does that take? Do I have to wait until the CRA finishes investigating?
Answer: The CRA has 30 days to investigate. The FCRA does not require you to wait for the completion of investigation prior to continuing with your adverse action process. However, it may be wise to consult your attorney prior to rejecting an applicant with an open dispute. It doesn’t come as a surprise that there have been some recent lawsuits that focus on this topic.
Question: So if I do these three steps, no one will sue me?
Answer: Complying with these steps will go along way to shielding you from a federal lawsuit for violating the disclosure, authorization and adverse action sections of the FCRA. Remember, many states, and even some cities, have their own fair credit reporting laws that may impose additional requirements. That is why you need to make sure you know and comply with the fair credit reporting laws of all states in which you hire people. Furthermore, make sure to check EEOC guidelines and other federal, state and local laws regarding what information you may use. Moreover, pay attention to how you may use it in making your hiring decisions. Time and space do not permit us to discuss those here and now, though. That will have to be the subject or one or more subsequent posts.
Question: I’m got the idea of Pre-Adverse and Adverse Action Notices. Are we good for now?
Answer: Well, since we did throw a lot of material at you, yes we are done – for now. We do expect to post more on the use of background checks in hiring, so check back with us soon!
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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