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.

This is my attorney face

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