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.
Author: David B. Weisenfeld, JD, Legal Editor
Updated to reflect final regulations to the New York City Fair Chance Act, effective August 5, 2017.
Under the Fair Credit Reporting Act, an employer must provide an applicant or employee with a summary of rights before taking an adverse action based on a consumer credit report obtained from a consumer reporting agency or within three days of requesting an investigative consumer report.
Updated to reflect District of Columbia law restricting credit checks.
The Supreme Court has ruled in Spokeo v. Robins that a plaintiff must allege something more than a hypothetical violation in order to pursue a federal claim under the Fair Credit Reporting Act (FCRA).
An employer's use of background checks raises many compliance issues, including the Fair Credit Reporting Act; the state "ban the box" trend that prevent employers from asking criminal history questions on initial job applications; and ensuring background checks do not discriminate against minority job applicants.
This How To outlines the steps an employer should take in with determining whether to run a credit check during the preemployment process and how to do so.
An employer may use this policy to notify job applicants and employees of its intent to perform a background check. An employer may not conduct a background check without written authorization from job applicants or employees.
This How To outlines the steps that an employer should take when using criminal records for employment purposes.
An employer may use this letter to notify job applicants that the results of a background check may disqualify the job applicant for employment with the employer, if found to be accurate.
HR guidance on complying with the Fair Credit Reporting Act (FCRA).