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Complying with the Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) is designed to protect the privacy of consumer report information and to guarantee that the information supplied by consumer reporting agencies is as accurate as possible. Amendments to the FCRA significantly increase the legal obligations of employers who use consumer reports. Congress expanded employer responsibilities because of concern that inaccurate or incomplete consumer reports could cause applicants to be denied jobs or cause employees to be denied promotions unjustly.
As an employer, you may use consumer reports when you hire new employees and when you evaluate employees for promotion, reassignment, and retention — as long as you comply with the Fair Credit Reporting Act (FCRA).
What is a Consumer Report?
A consumer report contains information about a person's personal and credit characteristics, character, general reputation, and lifestyle. To be covered by the FCRA, a report must be prepared by a consumer reporting agency (CRA) — a business that assembles such reports for other businesses.
Employers often choose to do background checks on applicants and to order consumer reports on employees during the course of their employment. For sensitive positions, it's not unusual for employers to order investigative consumer reports, which include interviews with an applicant's or employee's friends, neighbors, and associates. All of these types of reports are consumer reports if they are obtained from a CRA.
Key Provisions of the FCRA Amendments: Written Notice and Authorization
Before a potential employer can order a consumer report for employment purposes, the applicant or employee must be notified in writing that a report might be used. The individual must also give their written authorization before a CRA can be contacted to supply the report.
Adverse Action Procedures
Specific procedures must be followed if an employer relies on a consumer report for an "adverse action" – the denial of a job application, reassigning or terminating an employee, or denying a promotion:
Step 1:
Before an adverse action can be taken, the individual must be given a pre-adverse action disclosure that includes a copy of their consumer report and a copy of A Summary of Your Rights Under the Fair Credit Reporting Act — a document prescribed by the Federal Trade Commission. The CRA that furnishes the consumer report will provide the summary of consumer rights.
Step 2 :
After an adverse action has been taken, the individual must be given notice — orally, in writing, or electronically — that action has been taken in an adverse action notice . It must include:
- the name, address, and phone number of the CRA that supplied the report;
- a statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give specific reasons for it; and
- a notice of the individual's right to dispute the accuracy or completeness of any information the agency furnished, and his or her right to an additional free consumer report from the agency upon request within 60 days.
Certifications to Consumer Reporting Agencies.
Before being able to order an individual's consumer report, the CRA will require the individual or company making the request to certify that they are in compliance with the FCRA and that the information in the report will not be misused or be in violation of federal or state equal employment opportunity laws or regulations.
Non-Compliance
There are legal consequences for employers who fail to get an applicant's permission before requesting a consumer report or who fail to provide pre-adverse action disclosures and adverse action notices to unsuccessful job applicants. The FCRA allows individuals to sue employers for damages in federal court. A person who successfully sues is entitled to recover court costs and reasonable legal fees. The law also allows individuals to seek punitive damages for deliberate violations. In addition, the Federal Trade Commission, other federal agencies, and the states may sue employers for noncompliance and obtain civil penalties.
For information on the Fair Credit Reporting Act (FCRA), please visit
http://www.ftc.gov/os/statutes/fcradoc.pdf
For information on complying with the Fair Credit Reporting Act, please visit
http://www.employeescreen.com/web/pdfs/fcra_article.pdf
For information on the Federal Trade Commission for the Consumer, please visit
http://www.ftc.gov/os/statutes/fcrajump.htm
For information on “Your Credit Rights: The FACT Act”, please visit
http://www.ftc.gov/bcp/conline/edcams/credit/ycr_free_reports.htm
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