4 Steps Employers Must Take to Ensure FCRA Compliance

What are the four primary steps that employers must take in the Fair Credit Reporting Act (FCRA) process for onboarding an applicant? Bethany Salvatore and Bryant Andrews discuss FCRA requirements and how employers can protect themselves from liability.

Video Transcript:

Bryant A.:            Hi. I’m Bryant Andrews and joining me today is my colleague Bethany Salvatore. And we are Labor and Employment attorneys with Cozen O’Connor. Thank you for following our vlog series where we’ve been discussing some of the legal considerations that can arise during the hiring process, including those that arise with job descriptions and criminal background checks. Today, we wanna complete our discussion about background checks, by talking about employer obligations, under the Fair Credit Reporting Act or the FCRA.

Bethany S.:         In the employment context, the FCRA is applicable when an employer seeks background information about an applicant. If an employer obtains a consumer report, which would typically be a credit check or a criminal background check via a third party or a consumer reporting agency, the Fair Credit Reporting Act is triggered and there are a number of requirements that employers must meet to ensure that they’re complying with the Fair Credit Reporting Act.

Bryant A.:            And, can we dive into some of these requirements? How many are there? How extensive are they? Are they easy to follow?

Bethany S.:         Well, the Fair Credit Reporting Act requirements in the employment context are actually very simple to follow.

Bryant A.:            Okay.

Bethany S.:         There are four primary steps that employers must take in this FCRA process for onboarding an applicant. That said, I often see a number of missteps in this space. So, it’s a very, very easy process to follow if you follow it to the “T”. If you deviate from the FCRA requirements, then employers do expose themselves to potential liability. So, discussing those four steps. Number one would be having the employer provide the applicant with a written disclosure that is a clear and concise disclosure statement to the applicant, telling them what this process is actually going to be. The Fair Credit Reporting Act has specific language that they want to see in that disclosure statement.

Bryant A.:            Okay.

Bethany S.:         And most importantly, the disclosure statement must be a standalone document. And that’s where I see some missteps. I often times see employers who take that language and embed it in their application. That’s a no no.

Bryant A.:            Right.

Bethany S.:         I also see employers who have a standalone document. The Fair Credit Reporting Act disclosure, and they’ll staple it to the application. And as silly as that seems, that’s actually running a foul of the Fair Credit Reporting Act. They’re very serious about making sure that is a standalone document. So, that’s step one. Step two, is obtaining written consent from the applicant that they understand what’s about to happen. That there is going to be a third-party agency, consumer reporting agency, who is going to be running this credit or criminal background check. That’s step two. Step three is another area that I often see missed in the FCRA process. Step three is what we call the “Pre-Adverse Action Notification Letter”. That should go out to an applicant if, after an employer receives the background check at issue and sees a red flag.

Bethany S.:         And for those employers that have tuned into our prior vlog, you have run the criminal background check requirements in your particular jurisdiction. And you decide that you’re going to take an Adverse Action against this applicant. Typically speaking, you’re not going to hire this individual. If you’re not going to hire the individual, before you send out the letter that says, “Thank you for applying with the company, but we’re going in a different direction.” You need to send out this pre-Adverse Action notification. And again, there are specific requirements that need to be in this pre-Adverse Action Letter. And, the purpose of this process, is if there is a misstep by the consumer reporting agency or if there is a typo in the report that the employer received, it gives the applicant a reasonable period of time to correct that misinformation.

Bethany S.:         After that reasonable period of time has expired, we move into the final step, which is step four. Step four is the letter that we all kind of know as the “Thanks, but no thanks” letter. This is the letter that goes out that says, “We considered your application, but you are not going to be hired by the organization.” Again, the Fair Credit Reporting Act has very specific requirements for what must be contained in that Adverse Action letter. Without getting into the nitty gritty of the details, we advise you to educate yourself on those requirements, seek out advice or counsel on those letters.

Bryant A.:            Always.

Bethany S.:         So that when they go out, they go out in a manner that is protecting the company for potential liability.

Bryant A.:            Right. Now, Bethany, you mentioned earlier how any missteps in this process might result in litigation, class action litigation, even in the millions. And a great example of that is a case that came out of the 9th Circuit this past January, called Gilberg verses California Cashing Check Stores. And in this case, the 9th Circuit determined that that standalone disclosure requirement that you talked about, it really does mandate that only disclosure information is included in that document. That any extraneous information actually, could run the risk of confusing applicants about what is going on in the process. Surprisingly, the court actually determined that this is the case, even if an employer includes information that could be helpful to the applicant, like information about the nature and scope of the background check, information about the applicants rights and their rights, should they become an employee.

Bryant A.:            All this information that is quite helpful. The court said, “No, this extraneous information could run the risk of confusing the applicants”. Which is contrary to the FCRAs goal of providing disclosure documents that are clear and concise and conspicuous, like you said. So, we just wanna make sure, when you’re going through these four steps, follow the law to the “T”, no more, no less. Your employment counsel will definitely be able to help you figure out what that law is, so that you can get it right on the first try.

Bethany S.:         One more thing I do wanna note, which is, another question that I get from employers. After this entire process has run, you’ve decided you want this applicant to become an employee, you’ve onboarded the individual, they’re now an employee. The employers will come back and say, “Okay. I wanna run another round of criminal background checks or credit checks for some business related reason. Do I have to start again at step one? How does this process work in practice?”

Bryant A.:            Okay. Right.

Bethany S.:         And it depends on the state at issue. So, generally speaking, an employer can continue to run criminal background checks or credit checks on individuals once they are employees, based upon that written consent that they provided at the application stage. That said, there are states that have different requirements. So, if you are thinking about, as an employer, running consistent or consecutive checks on a somewhat regular basis. Make sure you know the law in your particular jurisdiction on that issue.

Bethany S.:         And also, make sure you’re … if you’re doing this, make sure you’re doing it in a nondiscriminatory manner. Make sure you’re prepared for adverse results. And how you’re going to handle those for current employees. And just, those are some of the considerations that I talk about with clients when they ask about ongoing background checks, into employment process.

Bryant A.:            And that’s all so great. And as you can tell, there are a couple of moving pieces here. We encourage you to go back and supplement this episode of our vlog with our last one, about criminal background checks for complete and full purview of this area of the law. We thank you so much for tuning in. We always have fun and hope you do too. Next month we plan on talking about some interview do’s and don’ts. And other interview considerations for employers. Should be a good one. We hope you tune in again. And if you have any questions, please feel free to reach out to us and the information that’s provided in the description. Thank you.

Bethany S.:         Thanks so much.


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HR Headaches is a blog for Human Resources professionals, business owners, and in-house counsel to get the latest news, analysis and tips in the area of labor and employment law. Every day there are new court decisions, agency interpretations, and regulations which affect the workplace, making it difficult, if not impossible, for many employers to keep current. HR Headaches is dedicated to providing information in a practical, no-nonsense manner to help employers avoid legal disputes and keep policies up to date.
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