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Record retention is complex and time consuming. However, in addition to complying with various federal and state laws, keeping good, well-organized records can be very helpful in documenting and supporting an organization’s employment actions.
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This special report will discuss how you can ensure your records are in good order, and establish a record-retention policy.

Topics covered:
1. Hiring Records
2. Employment Relationships
3. Termination Records
4. Litigation Issues
5. Electronic Information Issues
6. Tips for Better Recordkeeping
7. A List of Legal Requirements

Make sure you have the information you need to know to keep your records in order.

June 20, 2012
Understanding FCRA and Its Impact on Background Checks
By Susan Prince, JD, M.S.L., Legal Editor

The Fair Credit Reporting Act (FCRA) is a federal law that places restrictions on gathering information about employees. Generally, employers who have a third party perform a criminal record check are required to provide notice to applicants and employees and obtain a written consent. Are you familiar with FCRA and its requirements?

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Under FCRA, credit reporting and other investigative agencies may provide background financial and personal information to an employer about an employee or applicant for a permissible “employment purpose’. A permissible employment purpose is defined as for the evaluation of an individual for employment, promotion reassignment, or retention.

Consumer reports and investigative consumer reports: what’s the difference?

FCRA distinguishes between two forms of reports, consumer reports and investigative consumer reports. Consumer reports such as credit checks provide general financial and personal data about an individual’s payment history, overall indebtedness, addresses of record, etc. Investigative consumer reports provide in-depth information about an individual’s character, general reputation, personal characteristics, mode of living, etc., that may be obtained through searches of public records and/or interviews with neighbors, friends, professional associates, and other acquaintances.

Due to the more “intrusive” nature of investigative consumer reports, the FCRA requires employers who request this type of report to comply with additional notice and disclosure requirements. When an employer seeks employment references, driving records, and criminal background information they are requesting an investigative consumer report.

Before obtaining any type of consumer report, an employer must:

  • Make a clear and conspicuous disclaimer to an individual, in writing, in a document consisting solely of the disclosure (i.e., as a standalone document, not as part of the body of an employment application), that a consumer report may be obtained for employment purposes.
  • Obtain the individual’s signed authorization to obtain the report.

In addition to the requirements listed above, before obtaining an investigative consumer report, an employer must clearly and accurately disclose to an individual that the report may include in-depth information about his or her character, general reputation, personal characteristics, mode of living, criminal, driving and work history, etc. This disclosure must:

  • Be in writing,
  • Be mailed or otherwise delivered to the individual no later than 3 days after the report was first requested, and
  • Include a statement informing the individual of his or her right to request additional disclosures and to receive a written summary of legal rights.

If an individual does request additional information about the nature and scope of the investigation, an employer must mail or otherwise provide the information within 5 days of receipt of the written request, or the request date of the report, whichever is later.

The notice and authorization signed by an applicant or newly hired employee authorizing the employer to obtain a consumer or investigative consumer report should inform the employee that such reports may be obtained at any time during employment. In this way, if the employer wants to obtain a report in conjunction with considering an employee for promotion or termination, the authorization will already be on file. In addition, it is a good practice to provide applicants with the summary of legal rights at the time they sign the authorization and disclosure. This way the employer will be in compliance with the notice requirements for an investigative consumer report.

Before taking any adverse action against an individual that is based in whole or in part on the information contained in a consumer or investigative consumer report (i.e., termination of employment, refusal to hire or promote), an employer must provide the individual with:

  • A copy of the report, and
  • A written statement of the individual’s rights under the law, as prescribed by the Federal Trade Commission (FTC).

If an adverse action is taken that is based in whole or in part on the information contained in the consumer or investigative consumer report, an employer must provide, either orally, in writing, or electronically, the following:

  • Notice of the adverse action;
  • The name, address, and telephone number of the consumer reporting agency that provided the consumer report,
  • A statement that the consumer reporting agency did not make the adverse decision and cannot provide the individual with the specific reasons supporting the action,
  • Notice of the individual’s right to obtain a free copy of the consumer report (if the report is requested within 60 days of receiving notice of an adverse action, a consumer reporting agency must provide the report free of charge), and
  • Notice of the individual’s right to dispute the accuracy or completeness of the information contained in the report.

Information that may not be included in consumer reports

Consumer reporting agencies may not provide a report for employment purposes that contains:

  • Medical information unless the subject of the report specifically consents to its disclosure.
  • Individual arrest information that predates the report by more than 7 years. However, if an individual earns, or is reasonably expected to earn, an annual salary of $75,000 or more, older arrest information may be reported. Convictions may be reported no matter how old.

At times, employers must conduct an investigation of a current employee who is suspected of employment-related misconduct or failure to comply with legal or company rules. The investigation that fits into this category and is most familiar to employers is an investigation of alleged sexual harassment in the workplace. In the past, if an employer hired a third party (attorney or consultant) to conduct a sexual harassment investigation and prepare a report for the employer, the report was subject to all of the FCRA requirements.

However, FCRA now specifically excludes this type of investigation from the requirement that employers provide employees with a notice and obtain a signed authorization before obtaining such a report, as long as the investigation and report do not deal with the employee’s credit worthiness and the report is only disclosed to the employer or its agent, i.e., attorney. Even though this type of report is now exempt from the notice and disclosure requirements, if adverse action is taken against the employee based on the investigation and report, the employee must be given a summary of the information that formed the basis for the adverse action. The employer is not required to disclose the sources of the information contained in the summary, which allows the employer to protect the identity of those who were interviewed as part of the investigation.

The Fair and Accurate Credit Transactions Act of 2003 (FACTA)

FACTA amended FCRA to regulate the disposal of consumer reporting information in an effort to help prevent identity theft. The FTC has adopted rules to implement the disposal requirements. The rules require employers to take "reasonable measures" to protect against unauthorized access to or use of information in connection with the disposal of the consumer information. The new rules are intended to help protect against consumer identity theft but apply equally to reports obtained for employment purposes.

Regardless of whether consumer information is maintained electronically or in hard copy, employers must take reasonable measures to protect the information. The FTC provided some examples of reasonable measures, including:

  • Implementing and monitoring compliance with policies and procedures that require burning, pulverizing, or shredding papers containing consumer information so that they cannot be read
  • Implementing and monitoring compliance with policies and procedures that require the destruction or erasure of electronic media containing consumer information so that it cannot be accessed and read
  • Contracting with a company that engages in the business of records destruction to dispose of consumer information in a manner consistent with the rule but only after due diligence to ensure the company has procedures in place to protect the information

Susan E. Prince, J.D., is a Legal Editor for BLR’s human resources and employment law publications. Ms. Prince has over 10 years of experience as an attorney and writer in the field of human resources and has published numerous articles on a variety of human resources and employment topics, including compensation, benefits, workers’ compensation, discrimination, work/life issues, termination, and military leave. Ms. Prince also served as an expert on several audio conferences discussing the 2004 changes to the federal regulations under the Fair Labor Standards Act. Before starting her career in publishing, Ms. Prince practiced law for several years in the insurance industry and served as president of a retail sales business. Ms. Prince received her law degree from Vermont Law School.

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