Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back
Back

New Requirements Under The Fair Credit Reporting Act For Employment Background Checks

Written by: Jennifer L. Parent

Published in New Hampshire Business Review

Alice, a vice president, wants to use an outside credit agency to help with background checks for applicants as the checking of references has become too time-consuming for the company. Before making this proposal to the president, Alice needs to know whether the law requires the company to follow any certain processes or procedures in order to take this action.

Companies routinely conduct background checks on applicants for employment or current employees being considered for promotion to assist them in selecting the best candidates.  There are several types of background checks available to employers. The type of check utilized should depend upon the requirements and nature of the job position. Some checks may also be required by federal or state law.

Employers are subject to the Fair Credit Reporting Act (“FCRA”) when they utilize third parties to perform background checks on job applicants or employees. The FCRA requires employers to notify applicants/employees before ordering a background check or taking an adverse employment action based on the results of a background check. It also requires that prior to ordering a background check, an employer must obtain the application/employee's consent. Failure to comply with these requirements can result in civil penalties, punitive damages, and even attorneys' fees.

Employers may use their own employees, such as a human resource professional, to conduct background checks by verifying references or credentials without implicating the FCRA. If a company decides, however, to use an outside consultant or agency, other than a governmental law enforcement agency like the State Police, to conduct a background investigation or any other background check of an applicant/employee, the requirements imposed by the FCRA are triggered.

As of January 1, 2013, employers required to follow the FCRA must provide new and updated notices to applicants and employees. The recently created Consumer Financial Protection Bureau (“CFPB”) issued these new requirements and deadlines. The CFPB is now the enforcement authority over the FCRA. Prior to the creation of this new federal agency, the Federal Trade Commission enforced the FCRA.
 
Under the FCRA, an employer must certify that it: (1) notified the applicant/ employee and obtained that individual’s permission to get a consumer report; (2) complied with all of the FCRA requirements; and (3) will not discriminate against the applicant or employee or otherwise misuse the information, as provided by any applicable federal or state equal opportunity laws or regulations.

Before an employer may reject a job application, reassign or terminate an employee, deny a promotion, or take any other adverse employment action based on information in a consumer report, the employer must give the applicant or employee: (1) a notice that includes a copy of the consumer report relied upon in making the decision; and (2) a copy of a summary of Rights Under the Fair Credit Reporting Act.

The 2013 change includes modification to the mandatory “Summary of Rights” form. This form is a standard notice that must be provided to an applicant or employee subject to an investigative consumer report or when a “pre-adverse action” notice is sent to an applicant or employee. A copy of the new notices are available at www.consumerfinance.gov.

Not too long ago, amendments to the Dodd-Frank Act specifically added the disclosure requirements for any person taking an adverse action based on a credit score. The adverse action notice includes the numerical credit score, the range of possible credit scores, the factors adversely affecting the credit score (top four factors plus key factors), the date the credit score was created, and the name of the entity that provided the credit score.

The purpose of obtaining a background check is to determine if the applicant or employee is suitable for the job position. The check can be done either before making an offer of employment, right after making an offer of employment conditioned on a satisfactory background check, or when considering an existing employee for another position.

Now is a good time for businesses to review their procedures for conducting background checks and the forms they use to make sure that they are in compliance with federal and state laws.  Specific state laws may be more restrictive. For example, Massachusetts has special timing requirements that differ from the FCRA.

Here, Alice, if the company decides to take this action, should conduct due diligence on potential outside agencies handling the background checks. When deciding upon an outside agency, companies should ask about the agency’s FCRA compliance program. Companies may also want counsel to review any disclosure or consent forms provided by the agencies. Alice should also train those making hiring or personnel decisions involving a background check in this area of the law. 

Jennifer Parent is a Director in the Litigation Department of McLane, Graf, Raulerson & Middleton, Professional Association.  Jennifer can be reached at (603) 628-1360 or [email protected].  The McLane Law Firm is the largest full-service law firm in the State of New Hampshire, with offices in Concord, Manchester and Portsmouth, as well as Woburn, Massachusetts.  www.mclane.com

Integrity and trust

At McLane Middleton we establish and maintain long-standing relationships with our clients to help us better achieve their unique goals over time. This approach to building trust requires that our esteemed lawyers and professionals use their broad, in-depth knowledge and work together with integrity to ascertain sound resolutions to legal matters for their clients.

Strength in numbers

McLane Middleton is made up of more than 105 attorneys who represent a broad range of clients throughout the region, delivering customized solutions. As a firm we are recognized as having the highest legal ability rating. The firm is rated Preeminent by Martindale Hubbell and is recognized as one of the nation's leading law firms in Chambers USA. Our attorneys are distinguished leaders in their respective practice areas.

Meet Our People

Commitment and collaboration

McLane Middleton's versatile group of attorneys and paralegals become trusted authorities on each case through collaboration. We work with our clients to learn their individual needs first and foremost and, together, we develop comprehensive solutions to their specific legal matters. This approach helps us exceed our clients' expectations efficiently and effectively, client by client, case by case.

Practice Areas

A history of excellence

McLane Middleton was established in 1919 in New Hampshire, and has five offices across two states. However, deep historical roots don't allow you to become innate. Our firm is organized, technological, and knowledgeable. Our history means we are recognized. But our reputation is built on the highest quality of service and experience in very specific areas of law.

The Firm

Intelligence paired with action

Our team continuously seeks opportunities to enhance their professional development and put key learnings to action. The pursuit of further insight guides us to volunteer service opportunities, speaking engagements, and teaching roles. Our lawyers are sought after thought leaders across their industries, and recipients of leadership awards throughout the region.