Overview: The Fair Credit Reporting Act (FCRA) governs the use of consumer credit reports as well as investigative consumer reports for employment purposes. To conduct these third-party employee background checks of job applicants or employees, companies must comply with a number of steps under the FCRA. Chief among the steps are the Act's notice and consent requirements.
The FCRA mandates not only that employers notify all job applicants and employees beforehand if they wish to conduct a background check, but that employers obtain their written consent.
In addition, employers that decide they might deny employment or take other adverse action based in whole or in part on the findings of a background check first must send a pre-adverse action letter to the applicant or employee. This notification also must provide a copy of the report, a summary of FCRA rights and information on how individuals can challenge the report if they wish to do so.
HR professionals should be aware that several states have counterparts to the FCRA. Many mirror the federal legislation, but some impose additional requirements.
Trends: A number of states, including California, Illinois and Connecticut, have enacted laws in the last few years limiting the use of credit checks to certain types of jobs such as those involving financial data or sensitive information. A host of similar measures have been introduced elsewhere, so this is a trend that bears watching.
David B. Weisenfeld, J.D., Legal Editor
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K-Mart has announced it will pay $3 million to settle claims that it failed to properly warn job applicants that they could be denied employment based on background checks. A class of more than 60,000 jilted job applicants had sued the Illinois-based retailer claiming Fair Credit Reporting Act (FCRA) violations. This settlement comes on the heels of other recent FCRA cases involving similar issues.
The Fair Credit Reporting Act does not prevent an employer from conducting third-party credit checks so long as the employer obtains the applicant's written consent and complies with the FCRA's notice requirements. However, some states have gone beyond federal law and placed restrictions on when employers can conduct credit checks of job applicants or employees for screening purposes to certain types of positions.
Effective January 1, employers that utilize background checks must use a new "Summary of Rights" form to notify job applicants and employees of their rights under the Fair Credit Reporting Act.
HR guidance on complying with the Fair Credit Reporting Act (FCRA).
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