March 27th, 2018 | Debbie Lamb, Sterling Talent Solutions
Starting 2018 With FCRA Compliance
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 guidelines and legislation impacting the hiring process.
What is the Fair Credit Reporting Act?
The Fair Credit Reporting Act (FCRA) is a consumer protection law dating back to the 1970’s. The services and programs that a Consumer Reporting Agency (CRA), such as Sterling, provides fall under the regulation of the FCRA. The Consumer Protection Bureau (CFPB) enforces the rules dictated under the FCRA.
There are four procedures that must be followed by an organization that is utilizing a CRA to perform background checks in order to be compliant with the FCRA:
- End-user Certification
- Disclosure and Authorization
- Pre-Adverse Action
- Adverse Action
CRA’s are required to obtain a certification of compliance by the user (client) that the user will abide by the FCRA and other applicable laws. 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.
A stand-alone Disclosure and Authorization form should be utilized by companies who conduct background checks. A Disclosure form is not compliant with FCRA rules if it contains a Release of Liability or if it is included on job applications. 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.
The Process for Disqualifying Applicants
Generally, an employer can disqualify an applicant based on information in a background check report even if the information was not requested on the employment application or during the job interview. As a general matter, all hiring disqualification decisions should be based on individualized analysis of job-related issues raised by the background screening report. If the background report does not reveal any disqualifying information, there are no additional obligations, with the exception that individuals in California, Massachusetts, Minnesota, New Jersey and Oklahoma who requested a copy of the report are provided with a copy.
If the background check report reveals disqualifying information, there are two more steps that must be completed: Pre-Adverse Action and Adverse Action.
- Pre-Adverse Action – A Pre-Adverse Action Notice/Letter is sent along with the copy of the background screening report, 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 at least 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.
Disqualifications Due to Credit Reports
A question that is often asked is “can a credit report can be used to deny employment?” The answer is yes, but companies should consult with legal counsel and be careful before making employment determination based on a credit report. Some states/jurisdictions have restricted the use of credit reports based on position and industry and there are many other states who currently have proposed legislation to limit or prohibit the use of credit reports in hiring. Two cities have enacted laws in the past year, including the New York City Stop Credit Discrimination in Employment Act and Washington D.C. Fair Credit in Employment Amendment Act.
Disqualification Due to Criminal Records Checks
There are some state and federal limitations to the use of criminal convictions, arrests that did not lead to convictions, arrests pending dispositions, open cases and violations that will affect how a company proceeds with the disqualification of a candidate. 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 a conviction in making employment decisions
- An employer should not have a blanket denial policy based on a conviction record
- An employer should conduct an individualized analysis and dialogue in utilizing conviction records in making employment decisions
Federal law prohibits Sterling from releasing arrest records that did not lead to a conviction, which are over seven years old unless the individual will earn $75,000 or more. In New York State, a CRA cannot report arrests that did not lead to conviction or violation convictions. Other states also have limitations for CRAs on criminal record reporting.
Ban the Box Laws
Ban 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. Some of states and cities who have enacted ban the box law include:
- The New York City Fair Chance Act
- The Los Angeles Fair Chance Initiative for Hiring
- California Ban the Box Law
- Kansas City, Missouri Ban the Box
- Washington State Fair Chance Act
Salary History Ban Legislation
Salary History Ban Laws, enacted on the local and state levels, are another type of legislation that impact background checks. These laws are being enacted to help reduce the wage gap between men and women workers. In August 2016, Massachusetts was the first state to pass a law preventing employers from asking job candidates about their salary history in an interview. Other salary history ban laws are:
- New York City Salary History Law
- Oregon Equal Pay Act of 2017
- Delaware Salary Restriction Law
- San Francisco Parity in Pay Ordinance
- California Salary History Ban
- Albany, New York Salary History Ban
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 Q1 2018 FCRA Compliance webinar and sign up for the quarterly updates.
PLEASE NOTE: Documents/presentations should NOT be construed as legal advice, guidance or counsel. Employers should consult their own attorney about their compliance responsibilities under the FCRA and applicable state and municipal law. Sterling Infosystems expressly disclaims any warranties or responsibility for damages associated with or arising out of this document/presentation or other information provided.
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.