Background Checks

The Fair Credit Reporting Act was created to prevent the abuse of consumer credit information in connection with extending credit to people by institutions like banks, credit card companies, retailers, and other institutions offering credit to consumers. Over the years the FCRA has been interpreted, reinterpreted, and redefined in more ways than are worth going into in this Blog. Currently, the Consumer Financial Protection Bureau is responsible for the enforcement of the provisions of the Act.

The point is, if you’re an employer and you use a consumer reporting agency to provide an “investigative consumer report” on a candidate for employment and you base your hiring decision “in whole or in part” on the information contained in that report, there are certain things you must do:

  • You must tell the candidate you’re having an investigative consumer report done by a consumer reporting agency (generally, we’re talking about a credit check here).
  • If you use a consumer reporting agency, you must obtain the candidate’s signature on a form that discloses legally required information about the process to the candidate. In other words, the candidate must know that a report may be done and also agree to the release of information about him or her that the agency may collect.
  • Before a hiring decision is made based in whole or in part on the result of a background check, the candidate must be notified in writing of the name of the consumer reporting agency and provided copies of the information you received from the consumer reporting agency – this gives an unsuccessful candidate a reasonable opportunity to refute or correct any of the information collected that may be incorrect.
  • If you decide not to hire the candidate, you must send an “adverse action” letter to the candidate outlining the candidate’s rights under the FCRA.

The purpose of all this is to prevent job seekers from wrongfully being denied employment on the basis of incorrect, out-of-date, or inaccurate information. But keep in mind that, even if you do an investigative consumer report but decide not to hire a candidate because his management style doesn’t fit the requirements of the position to be filled, you do not have to disclose that to the candidate. Disclosure is only required if the adverse hiring decision is based in whole or in part on the information contained in the investigative consumer report.