Understanding the Fair Credit
Reporting Act
Before you run a background or credit check on a
potential employee, future renter or even another person, you must
understand the new Fair Credit Reporting Act to ensure that you are in
complete compliance with this new law. If you do not follow the statues set
forth by the FCRA you could be in for a legal battle, and you may end up
facing some heavy fines. Let’s take a look at what you need to know about
the FCRA.
Most employers rely on third-parties to run background checks, and if you
are currently not, you could be unintentionally infringing on someone’s
rights. As an employer or a landlord, it is very important to remember that
background and credit checks cannot be completed in-house. This is an area
that you must outsource, for your own protection as a company.
There are five steps that have been laid down by the FCRA that all
businesses must comply with if they decide to run a background pre-screening
on an employee or a tenant that includes a credit check. They are:
You must use the information for employment purposes only.
You will not use the information in violation of any state or federal equal
opportunity law.
You must obtain the appropriate disclosures and/or consents before running
the check.
The applicant must be provided with an appropriate notice if adverse action
is taken against them as a result of the information contained in the
report.
In the event that a Investigative Consumer Report is run on an applicant,
the employer or landlord must provide additional information that is
required by law.
Now that you understand the broad rules, here are some tips on how to stay
in compliance.
1. Obtain a signed consent form from the applicant. This will ensure that
you have the proper permission to run the report.
2. Furnish the applicant with a disclosure that details the reports you plan
to run and what will happen in the event that adverse information is
obtained. The disclosure must inform the applicant that they will have the
right to request additional information about the background investigation
that you will be conducting.
3. In the event that the applicant does request additional information, you
will have five days to comply with their request. The report “A Summary of
Your Rights Under the Fair Credit Reporting Act” must also be included with
any information that you provide.
4. If the information returned affects your decision adversely, you must
inform the applicant immediately, provide them with the report mentioned
above and a copy of the actual credit report. After your negative decision,
you must also supply the applicant with a “Notice of Adverse Action.” You
must inform the applicant twice, once before your decision is final and then
again after your decision has been made final. This extra step is necessary
to ensure that their rights are not being violated.
If you have any questions regarding running background or credit checks, you
can visit www.ftc.gov for more information.
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