Fair Credit Reporting Act Basics

Fair Credit Reporting Act Basics

John Pate – LS Screening

Disclaimer
• I am not an attorney. Sometimes I talk like one or what I believe
an attorney sounds like. I’ve met many attorneys and am also
friends with several. They are essentially good people who try
hard and have good intentions. Their primary job is to avoid risk
but they are not always right.

• What I’m going to say today is totally my opinion. It is based on
experience (30+ years) and knowledge gained from making
mistakes. This conversation is about the fundamentals, the
“basics”, which will comprise 99% of the FCRA issues you will face
on a daily basis. If you run into an odd situation, ask me because I
may have already run into it. But, at the end of the day, you need
to talk to an attorney. They are licensed to give legal advice and I
am not.

Why Should I Care About This?
• April 2012 – EEOC enacts new guidelines for
use of criminal records in hiring
• November 9, 2012 – Today Show airs expose
on Background Check Industry
• January 1, 2013 – Consumer Finance
Protection Bureau assumes enforcement of
FCRA
• February 12, 2013 – 60 Minutes airs segment
the “shocking truth” about credit bureaus

Storm Clouds are Gathering…
It’s only a matter of time

Plaintiff Attorneys Smell Blood

Overview
• The FCRA is a Federal law that regulates a
very broad range of consumer transactions
including, but not limited to, credit,
insurance, housing (tenants) and the
employment process.
• Many states have their own version of the
FCRA. The Federal law supersedes state law
unless the state law is more stringent i.e.
California.

How We Got Here
• The FCRA was enacted in 1970
• Substantive amendments in 1996 and 2003
• Federal Trade Commission was responsible
for enforcement
• Effective January 1, 2013, enforcement is
now shared with Consumer Finance
Protection Bureau (CFPB).

TERMS YOU NEED TO KNOW
• CRA - Consumer Reporting Agency: Any
person or agency that assembles consumer
credit information (background checks) for
end users for money. That’s what LS
Screening is.
• End User: Any person or Agency that has
“permissible purpose” to access public and
proprietary records in the employment
process. That’s what YOU are.
• Consumer: Job Applicant

Terms - Continued
• Permissible Purpose occurs when a person or
Agency has established the legal right to access
public and proprietary records in a regulated
process (employment). Permissible purpose can be
defined by both the Federal and State governments
and may very accordingly. In our world, Permissible
Purpose begins when the employer discloses to the
applicant that a background check will be ordered
and the applicant signs the disclosure and release
form.
• “NAAASR” - pronounced “NAY-zer”: Notice of
Adverse Action and Applicant Summary of Rights

Terms - Continued
• Consumer Report: any written or verbal report
about a consumer (applicant) regarding their
“fitness” or “worthiness” for employment. It can
include criminal records, credit reports, driving
records, verification of previous employment and any
other piece or combination of pieces of data that
could affect an employer’s hiring decision.
• Adverse Action: Any action taken by the end user
that has a negative impact on a consumer i.e. “denial,
cancellation or unfavorable change” in employment
status, includes hiring, promotion, etc.

The Participants
• The Consumer Reporting Agency (CRA) - LS
Screening
• The End User - The Employer - G&A Partners
• The Consumer - The Applicant
• Proprietary Data Providers i.e. MVRs, credit
reports (new)

Responsibilities
• The CRA (LS Screening)
• Document and establish permissible purpose of
end user
• Provide reports that comply with Federal and
State Laws
• Maintain “reasonable” measures to insure
accuracy of reports
• Re-investigate consumer reports; correct
inaccurate reports

Responsibilities
• The End User
• Establish permissible purpose status by
complying with existing laws.
• Disclose to and receive consent from the
applicant before background check is ordered.
• Provide NAAASR when employment is denied and
the background check contributed “in whole or in
part” to their decision.

Responsibilities
• The Applicant
• Can include employee, independent contractor or
volunteer
• Has the right to dispute inaccurate information
• Proprietary Data Providers (MVRs, Credit
Reports, etc.)
• Audit CRAs to insure permissible purpose is being
observed.

What Every Employer Needs to Know

• The key to success is executing the
fundamentals
• Disclose and get consent in writing from the
Applicant before requesting a background check
when the end result may be adverse action. This
is where most mistakes occur.
• Provide NAAASR to Applicants that aren’t hired
• FCRA does NOT apply to drug testing

Disclosure
• Should be clear, conspicuous and in writing
before the background check is ordered
• Should be in a document that consists
“solely of the disclosure”
• Should not be part of a printed employment
application
• “Blanket” (aka “Evergreen”) disclosures are
permitted.
• FYI - Employees can DQ Applicants who
refuse consent

Pre-Adverse Action
• Before taking adverse action, the employer
must provide the consumer 1) With a copy of
the report and 2) A summary of the consumer’s
rights under the FCRA
• The report must be un-redacted i.e. must be the
complete report
• Notice must be given if the information in the report
DQs the applicant from employment
• The idea is to give the applicant time (one week is
recommended) to dispute the information in the
report.

Adverse Action
• Is the sole responsibility of the End User; can
outsource the process but not responsibility
• Can be given orally, in writing or electronically
• Must include right to a free copy of the report
and the right to dispute the accuracy of the
report
• Must include name, address and telephone of
CRA who created the report

What does John think??
• Disclaimer Redux
• The Disclosure/Consent should be simple, separated from
the application & “evergreen” (always in force)
• Pre-Notices of Adverse Action should be given to everyone
on whom database searches are used as primary search
source. Database searches are not the most accurate or
current record.

What does John think??
• Don’t do a background check on every
applicant BUT, if you do and don’t hire the
person for any reason, send them a NAAASR.
• Avoids having to “prove the negative”
• Eliminates the issue completely
• Cheap insurance
• Keep employee files for 5 years

FAQs
• Do I need a release to run a criminal background check on
someone.
• YES - if the end result may be adverse action (of any kind) against the
subject. Criminal records are public and accessible to anyone so it’s
all about how they are used.
• What about an MVR or credit report?
• Those records are not public and access is regulated; disclosure and a
signed release are required
• Do I need to send a NAAASR to everyone I don’t hire?
• No - the FCRA says the background check must have contributed to
your report. However, since you have the report, you’ll then have the
burden of proving it wasn’t a factor - not easy to do.
• What kind a background check isn’t a consumer report regulated
by the FCRA?
• The one you don’t order. Okay, seriously, it’s the one that has nothing
to with the employment process.

References
• The Fair Credit Reporting Act
• http://www.ftc.gov/os/statutes/031224fcra.
pdf
• Notice to Users of Consumer Reports
• http://www.ftc.gov/os/2004/11/041119facta
apph.pdf
• NAAASR (2013)
• http://lsscreen.com/resources/

Questions?

Please send all questions and
comments to
info@gnapartners.com

Fair Credit Reporting Act Basics

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