Background Checks: Complying With The New Federal Rules

Congress recently changed the Fair Credit Reporting Act to require employers who obtain background reports on applicants and employees to follow detailed new authorization and disclosure rules. In an earlier article we described how these rules apply to credit reports. In this follow-up story, we’ll explain what the new law means for employers who use other types of background information such as criminal records and DMV data.

Are You Using A ‘Consumer Report’?

Under the Fair Credit Reporting Act (FCRA), a ‘consumer report’ is defined as any report by a consumer reporting agency that bears on an applicant’s or employee’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics or mode of living if the information is used or collected as a factor in establishing the person’s employment eligibility.

This definition includes credit reports but doesn’t stop there. It also covers background checks of criminal, education and driving records as well as any type of public record investigation-so long as the information is provided to you by a consumer reporting agency such as a credit bureau or background investigation firm.

Compliance Obligations

If you obtain this information from any of these sources, and you use it for employment purposes, you must follow the detailed new disclosure rules.

Here’s a summary of what you need to do:

1. Disclose to applicants and employees that you will obtain a report and its source. This disclosure must be in a stand-alone document and not simply a part of an application or other form. The document, which may be available from the consumer reporting agency, should also include: a) a box the applicant or employee can check to request a free copy of the report; and b) a space for the applicant or employee to sign, authorizing you to obtain the report.

    

2. Certify to the consumer reporting firm that you’ve made the proper disclosures and received advance authorization. Check with the agency to see if they have forms to use for this purpose.

    

3. Notify the applicant or employee if you intend to take adverse action against the person based in whole or in part on the consumer report. A separate notice is also required after you take the adverse action. 

    

Investigative Consumer Reports

There are special rules for another type of report called an ‘investigative consumer report,’ which contains information about a person’s character, general reputation, personal characteristics or mode of living obtained through interviews with people such as neighbors, friends or associates. All the notice, authorization and adverse action disclosure rules discussed above apply to investigative consumer reports as do some other separate requirements.

Government To Clear Up Confusion

The Federal Trade Commission, which enforces the law, acknowledges that there has been confusion over how the new regulations apply to the various types of reports. In fact, FTC attorney William Haynes told CEA the agency just revised materials it recently published as well as information on its Web site. The earlier materials for employers focused only on credit reports and didn’t make clear that the new rules also apply to other common types of consumer reports. For a revised copy of ‘Using Consumer Reports: What Employers Need to Know,’ call (202) 326-3650.