The Fair Credit Reporting Act (FCRA)

It is imperative that all employers and the legal counsel staff of an employer understand and follow all laws regarding the Fair Credit Reporting Act (FCRA). All requirements related to the employment background screening process are provided below only as general guidance for XG Consultants Group customers. This is not a sole educational source for an employer’s staff and is not intended as sole legal advice. The employer retains the full responsibility to understand and educate its own staff on the FCRA and the background screening process. The information contained herein is general and is neither complete nor necessarily applicable to any specific set of facts or circumstances, please consult legal counsel for further guidance.

Please visit the Consumer Finance Protection Bureau (CFPB) to obtain a full copy of the FCRA and other useful information at www.consumerfinance.gov/learnmore.

The Fair Credit Reporting Act (FCRA) is legislation embodied in title VI of the Consumer Credit Protection Act (15 U.S.C.A. § 1681 et seq. [1968]), which was enacted by Congress in 1970 to ensure that reporting activities relating to various consumer transactions are conducted in a manner that is fair to the affected individual, and to protect the consumer’s right to privacy against the informational demands of a credit reporting company.

The FCRA requires employers to follow certain procedures when it uses a consumer reporting agency to obtain a consumer report. Such procedures can be divided into several categories: 1) Before ordering a consumer report, 2) Before you take adverse Action and 3) Post Adverse Action Procedures.

  1. Before Ordering Consumer Report:
    Employer must notify the individual in writing – A clear and obvious disclosure in writing to the applicant in a document that consists solely of the disclosure, stating that a consumer report may be obtained for employment purposes. You must also get the person’s written authorization before you ask a CRA for the report. This Disclosure must be in a separate document and cannot contain any additional information except for the consumer’s authorization.
  2. Before You Take Adverse Action:
    If it is found that the consumer report contains information that in whole or in part, may negatively impact the employment opportunities of the applicant or employee, the employer must provide all of the following BEFORE such an adverse action is made: 1) A preadverse action notice, 2) A copy of the consumer report, 3) A summary of the applicants rights under the FCRA.
    By doing this, it allows the applicant the opportunity to dispute the negative information or findings in the consumer report. Based on the FTC opinion letter, it is deemed that a 5 day grace period be given to the applicant in order to respond to this pre-adverse notification before final determination is made or adverse action is taken by the employer, which will allow the applicant to challenge or dispute any information they believe is inaccurate.
  3. Post Adverse Actions Procedures:
    If the applicant does not dispute the information after a reasonable period of time or if the information is proven to be correct, the employer may then take adverse action (such as not employing the applicant) by providing the following information:
  • A notice to the applicant of the intended adverse action
  • The name, address and number of the consumer reporting agency with a statement that “the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the applicant the specific reasons why the adverse action was taken”
  • A notice of the applicant’s right to obtain a free copy of the consumer report within sixty days, from the consumer reporting agency’s report and to the opportunity to dispute the accuracy or completeness of any information in the consumer report.