April 12th, 2017 | Debbie Lamb, Sterling Talent Solutions

What’s New for FCRA Compliance?

FCRA Q1 Compliance Updates

For those that are not familiar or are new to the background screening industry, there is a lot to learn. First and foremost, background screening is a highly regulated industry. Candidates are protected under various local, state and federal laws. Employers need to be familiar and compliant with these regulations when hiring new employees. Sterling conducts a quarterly FCRA Compliance webinar series to keep attendees current on the latest FCRA Compliance updates.

What is the Fair Credit Reporting Act?

The Fair Credit Reporting Act (FCRA) is a consumer protection law dating back to the 1970’s. It was passed partly due to complaints from consumers that their credit reports were incorrect. The services and programs that a consumer reporting agency (CRA), such as Sterling, provides fall under the regulation of the FCRA. These services include criminal history searches, motor vehicle reports and employment and education verifications. The Consumer Protection Bureau (CFPB). enforces the rules dictated under the FCRA.

Consumers, defined as individuals under the FCRA, are protected under The Act with the right to reasonable procedures, disclosures and authorizations, adverse action protections and dispute/reinvestigations. However, the original sources of Public Records, such as courts, do not have obligations under FCRA. If they have inaccurate information that is provided to CRAs, the obligation falls on the CRA to have reasonable procedures in place to limit these occurrences.

FCRA Compliant Rules

There are two types of background screening reports covered under the FCRA: consumer reports and investigative consumer reports. A consumer report is prepared by a consumer reporting agency, whose information is used or collected for employment purposes, that consists of any written or oral or other communications of any information about a candidate’s credit worthiness, standing or capacity, candidate character, general reputation, personal characteristics and mode of living. An investigative consumer report includes reference verifications and personal references which cover more than just confirming employment.

There are four procedures that are required by the FCRA to be compliant. Two procedures occur before the background screening report is run while the other two take place as a result of the reporting:

  • End User Certification – CRA’s are required to obtain a certification of compliance by the user (in this case the client) that that user will abide by the FCRA and other applicable laws. The certification is part of the Sterling’s contract process and may also be requested periodically from clients. Users must certify that it has a permissible purpose, that every individual who is screened has given consent in the form of a written authorization and disclosure before running the background check and that the user will follow the adverse action process.
  • Disclosure and Authorization – A stand-alone Disclosure and Authorization form should be utilized. This form should be distributed with a Federal Summary of Consumer Rights and any state specific Summary of Rights. As per FTC opinion letters, electronic consent is acceptable.
  • If the background report does not reveal any disqualifying information, there are no additional obligations, other than for specific state rules that require CRA’s to send a copy of the report if it is requested by the applicant. However, if the report reveals disqualifying information, there are two additional steps:

  • Pre-Adverse Action – A Pre-Adverse Action Notice/letter is sent along with the copy of the background screening report and federal summary of rights and any appropriate state summary of rights. Pre-adverse action is not the time for the individual to argue that the client should change the hiring decision, but it is solely a challenge to the accuracy of the information on which the client already has based its conditional decision. An individual has five days to contest the results. FCRA mandates that the candidate’s dispute must be resolved by the CRA within 30 days. If the individual does not contest the accuracy of the report within five days or does contest the information but the re-investigation confirms the original findings, the client may take adverse action.
  • Adverse Action – Adverse Action is an action that denies an individual employment or promotion, etc. In this final step, an Adverse Action letter is sent with another copy of the federal summary of rights and any appropriate state summary of rights. If the specific Adverse Action steps are not followed, it could lead to litigation.

Disqualification of Applicants and Employees

As a general matter, all disqualification decisions should be based on individualized analysis of job-related issues raised by the report. Disqualification is not covered by the FCRA, but rather this is regulated by state laws.

  • Credit Reports – Some states have restricted the use of credit reports based on position and industry. There are currently 30 bills in 17 states going through the legislative process which would limit or prohibit the use of credit reports. In 2015, the New York City Stop Credit Discrimination in Employment Act prohibited employers from using any information about an individual’s credit history or credit worthiness or information obtained from the individual regarding details about credit accounts, bankruptcies, judgment or liens. In March, 2017, Washington D.C. enacted the Fair Credit in Employment Amendment Act which limits credit inquiries by employers (with some exemptions) whether they are made pre-or post-offer. The law also applies to decisions about compensation, promotions or terms of employment.
  • Criminal Records – Companies must be careful of state and federal limitations on the use of criminal convictions, arrests that do not lead to convictions, arrests pending disposition/open cases and violations. There is specific guidance from the Equal Employment Opportunity Commission (EEOC) that covers the reporting and use of criminal records in the hiring decision:
    • Eliminate policies or practices that exclude people from employment based on any criminal record
    • An employer should not consider an arrest record that did not lead to conviction in making employment decisions
    • An employer should not have a blanket denial policy based on a conviction record
    • An employer should conduct and individualized analysis and dialogue in utilizing conviction records in making employment decisions
  • Ban the Box LawsBan the Box laws generally make it illegal for employers to request on an “initial written application form” any information about an applicant’s criminal history. Currently, there are over 15 states and over 100 cities/counties which have enacted Ban the Box legislation. The New York City Fair Chance Act bans employers or employment agencies from inquiring into an individual’s arrest or conviction record or perform a criminal background check until an employer has extended a conditional offer of employment. The bill also restricts an employer’s ability to issue any solicitation, advertisement or publication that directly or indirectly indicates any limitation or specification in employment based on a person’s arrest or criminal conviction history. The Los Angeles Fair Chance Initiative for Hiring went into effect on January 22, 2017. After an employer makes a conditional offer of employment to a candidate, they may ask the applicant about criminal convictions, but they may not withdraw the application based on the response without completing a written assessment that explains the link between the applicant’s criminal history and the risks inherent in the position applied for. The applicant gets five business days to provide information regarding rehabilitation or other mitigating factors and the position must be held open during that time.

Sterling strives to keep its clients up to date on laws pertaining to the background screening industry. To find out more about FCRA Compliance and information for the background screening industry, listen to an On Demand version of the webinar and sign up for the quarterly updates.

This publication is for informational purposes only and nothing contained in it should be construed as legal advice. We expressly disclaim any warranty or responsibility for damages arising out this information. We encourage you to consult with legal counsel regarding your specific needs. We do not undertake any duty to update previously posted materials.