Fair Credit Reporting Act of 2009

The Fair Credit Reporting Act comes into play any time an employer wants to run a background check on an applicant or employee through a third-party credit reporting agency (CRA). The result of this type of background check is a “consumer report.”  Consumer reports typically contain prior employment verifications, credit information, conviction record information, and driving record information. Informal background checks conducted by employers, such as “Googling” an applicant or checking the Wisconsin Circuit Court Access (WCCA) website for conviction record information, is not covered.

If an employer wishes to obtain a consumer report on an applicant or employee, there is a specific process that must be followed.  Failure to do so can result in a civil penalty.

Additionally, an employer cannot discriminate against an employee based upon the contents of a consumer report and cannot in any other way misuse the information provided by the CRA.  Failure to follow procedure as set forth in the Fair Credit Reporting Act or engaging in discrimination or otherwise misusing the information contained in a consumer report can lead to civil liability for the employer.

Employees also have specific rights through the Fair Credit Reporting Act that are important to understand, particularly for employees that are applying for positions and are confronted with the option of undergoing a background check and/or ramifications of undergoing a background check.

Employers’ Responsibilities

Before an employer can conduct a background check through the CRA, the employer must provide a “clear and conspicuous” notice of its intent to do so in writing, and receive a signed authorization from the individual upon which the employer wishes to conduct the background check.  The notice and authorization should be provided on its own, separate piece of paper, not attached to other, unrelated documents.

The employer must also certify to the CRA that it has provided the notice and authorization to the individual, that it has and will continue to comply with the Fair Credit Reporting Act, and that it will not discriminate against the individual based on the report’s contents or otherwise misuse the information.

In the event the employer has a written policy that background checks are run on current employees at certain intervals, the notice and authorization should clearly state that as well.

What Can Result from a Consumer Report?

Potentially, an employer can decide to take an adverse employment action against an applicant or employee based on the information provided in the consumer report.  The most common adverse action occurs during the hiring process when an employer decides not to hire an applicant based on the information contained in a consumer report.

To protect against taking adverse actions based on incorrect information, the Fair Credit Reporting Act requires that in the event an employer decides to take an adverse action based on the consumer report’s contents, the employer must first provide the applicant with notice of its intent to take an adverse action, a copy of the consumer report it reviewed in reaching that decision, and a copy of a document titled “Summary of Your Rights Under the Fair Credit Reporting Act.”  This gives the individual an opportunity to review the report and object to any inaccuracies in the report, in an attempt to prevent the adverse action from happening.

After the adverse action is taken, for example the rejection of the applicant, the employer must provide the individual with: a notice of the adverse action; the contact information (name, address, telephone number and web address) of the CRA that provided the report; a statement that the CRA did not make the decision to take the adverse action and cannot explain to the applicant why the adverse action was taken; a notice that the individual has the right to dispute the information contained in the report; and a notice that the individual has the right to obtain a free copy of the report from the CRA for 60 days.

Discrimination & Background Checks

The most common form of discrimination that arises in connect with background checks and consumer reports is conviction record discrimination. Conviction record discrimination usually occurs in one of two ways:

  1. An employer takes an adverse action against an applicant or employee based on an unrelated conviction
  2. An employer takes an adverse action against an applicant or employee based on its misinterpretation of an applicant or employee’s conviction record (for example, the employer believes that an individual was convicted of an offense after viewing the consumer report, when the individual was really only charged with, but not convicted of, the offense)

For this reason, it is important for both employers and individuals to check the contents of a consumer report carefully to ensure that it is accurate.  Strictly following the procedures set forth in the Fair Credit Reporting Act is crucial.

Another result could be “disparate impact.”  Disparate impact occurs when a policy is neutral on its face, but its implementation adversely impacts a protected group, usually a particular race or ethnicity.  To ensure that this is not an issue, employers must be sure that they use the same policies with all applicants and employees and implement and enforce those policies equally.

Should You Consent to a Background Check

If Bad Things Can Happen, Why Even Consent to a Background Check? Sure, an employer cannot run a background check on an individual if s/he does not authorize an employer to do so, but the consequences could be far worse.  Not providing the authorization can eliminate an applicant from consideration for a job.

While it is a best practice for employers to give notice of this consequence in the notice and authorization form, it is not required.