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While employers may utilize credit reports and other screening devices, such as criminal background checks, during the hiring process, the Fair Credit Reporting Act (FCRA) imposes strict rules and procedures that must be followed. The failure to do so, either through willful acts or negligence, can result in liability to employees and job applicants.

The FCRA comes into play any time a “consumer report” is obtained by an employer. A consumer report is, in essence, “any written, oral, or other communication by a third party (a company paid by the employer to gather or provide information) that relates to the employee or applicant’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.”

Among the acts or omissions that may lead to litigation and liability under the FCRA are:

  • The failure to notify the employee or applicant that a consumer report is being obtained for employment purposes, and to certify that it will be obtained and used in a manner consistent with all applicable State and Federal laws;
  • The failure to obtain the employee’s or applicant’s consent before obtaining the consumer report;
  • The failure to provide a stand-alone document that notifies the employee or applicant of his or her rights and memorializes his or her consent to the background check. In other words, the notice/consent form cannot be part of an employment application or buried within the hiring forms provided by the employer;
  • The failure, before taking any adverse employment action based on a consumer report, to (1) provide a copy of the report, (2) advise the employee or applicant of the right to dispute the report, (3) provide information regarding how the dispute may be disputed.

Where these procedures are not followed, employees or applicants may have a claim under the FCRA, and may be entitled to damages, even if they are hired.

If you feel that your employer, or a prospective employer, has not followed the proper procedures relating to credit or other background checks, or if you are an employee that wishes to ensure that you are in compliance with this highly technical law, we are here to help.

For more information on the FCRA, please visit our FAQ page.