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Fair Credit Reporting Act and Background Checks

The federal Fair Credit Reporting Act (15 USC §1681 et seq.) does not require employers to conduct employment background checks. But the law sets a national standard that employers must follow in employment screening. State laws may give an employee more rights than the FCRA.

Do I have a right to know when a background check is requested?

Yes. Amendments to the FCRA, in effect September 30, 1997, increase the disclosure and consent requirements of employers who use "consumer reports." Such reports might consist only of a credit check. More extensive reports might include criminal histories, driving records, and interviews with neighbors, friends and associates.

To be covered by the FCRA, the Federal Trade Commission (FTC) says that a report must be prepared by an outside company -- a "consumer reporting agency" or business that "for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in ... assembling ... information on consumers for the purpose of furnishing consumer reports to third parties." (FCRA §603f)

Under the FCRA, the employer must obtain the applicant's written authorization before the background check is conducted. The authorization must be on a document separate from all other documents such as an employment application. In California, at the time an employer obtains permission for a background check, the applicant or employee should also be told that he or she may request a copy of the report. The FCRA, in contrast, says the subject is entitled to a copy of the report if a pre-adverse notice is given.

Under federal law, if the employer uses information from the consumer report for an "adverse action" - that is, denying the job applicant, terminating the employee, rescinding a job offer, or denying a promotion - it must take the following steps, which are explained further in the Federal Trade Commission's web site, www.ftc.gov/bcp/conline/pubs/buspubs/credempl.htm

• Before the adverse action is taken, the employer must give the applicant a "pre-adverse action disclosure." This includes a copy of the report and an explanation of the consumer's rights under the FCRA.
  
  
• After the adverse action is taken, the individual must be given an "adverse action notice." This document must contain the name, address, and phone number of the employment screening company, a statement that this company did not make the adverse decision, rather that the employer did, and a notice that the individual has the right to dispute the accuracy or completeness of any of the information in the report.

Modified disclosure and adverse action procedures under the FCRA (§604(b)(3)(B)) apply to positions subject to U.S. Department of Transportation (DOT) regulations such as truck drivers. The DOT has independent authority to set qualifications for workers in transportation industries.  (49 USC §31502)

Does the FCRA fall short?

The federal law has two significant loopholes. First, if the employer does not use a third-party screening company but, rather conducts the background check itself, it is not subject to the notice and consent provisions of the FCRA. Second, the employer might tell the rejected applicant that its adverse decision was not based on the contents of the background investigation, but, rather that the job pool was so exceptional that it made its hiring decision based on the fact that there were individuals more qualified than the applicant.

In both of these situations, the applicant would not have the ability to obtain a copy of the background check to find out what negative information it contained. We have learned of situations where the individual remained unemployed for years, not knowing that wrongful criminal records which resulted from identity theft were the reason for the individual's failure to find employment. (Read "Identity Theft: The Growing Problem of Wrongful Criminal Records," www.privacyrights.org/ar/wcr.htm.)

Recent amendments to California's "investigative consumer reporting" law have closed those loopholes. California law now requires that individuals who are subject to employment screening are able to obtain a copy of the background check whether or not an adverse action has been taken. And applicants have the same rights to notice and consent whether the employer hires an outside company to conduct the investigation or does the background check itself. (California Civil Code §1786). And now in California when an individual requests a copy of their report from the consumer reporting agency, the agency must explain their rights in a document written in both English and Spanish.

Perform a background check

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