3 Steps to Managing Adverse Action Compliantly

If you are making any negative decision based on information contained in a background check report, you must follow FCRA Adverse Action procedures (F.C.R.A. §604 (b), 15 U.S.C. §1681b). 

Adverse Action is not limited to passing on/letting go of an employee or potential employee, but rather applies to any "decision for employment purposes that adversely affects any current or prospective employee.” For example, if a potential employee applies for a management position and information in that report leads to that employee being offered a different position without a management component, the Adverse Action procedure must be followed.

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Keep in mind, this procedure must be followed even if the information in the Consumer Report informing your employment decision is not the only factor in the decision. For example, if you decide to no longer pursue a job candidate because of a piece of information in the report, as well as because other candidates had more desirable qualities, the Adverse Action procedure must still be followed.

Adverse Action is divided into three key steps, which we’ve outline below.

#1: Send a Pre-Adverse Action Notice

Before you take adverse action based on information contained in a Consumer Report, you must provide the consumer notice of your intention. This includes providing the consumer with the following:

  •  A Pre-Adverse Action Notice that notifies the employee that adverse action may be taken based on information in the report, as well as who to contact for questions about the information contained in the report.
  •  A copy of the consumer report that contains the information you’re using, in whole or in part, to make this decision.
  •  A copy of “A Summary of Your Rights under the Fair Credit Reporting Act.” You can download a copy from the FTC website here.

As the employer, you must retain a copy of the above documents for your records, as well.

#2: Give the candidate/employee “a reasonable period of time” to address potential inaccuracies

The FCRA does not expressly define “a reasonable period of time,” however, 5 business days is the generally accepted and enforced industry standard. Note that some state and local regulations set a specific time period for this step.

#3: Proceed with the Adverse Action Process (if Needed)

After the allotted “reasonable period of time,” or mandated waiting period has passed, you may proceed with the formal adverse action process.

If you do ultimately decide not to hire or promote the individual based on information contained within the consumer report, you must send them an Adverse Action Notice. This letter must include:

  • The name, address and phone number of the Consumer Reporting Agency that supplied the report.
  • A statement that the company that supplied the report did not make the decision to take the unfavorable action and can’t give the consumer specific reasons for it.
  • Notice of the consumer’s right to dispute the accuracy or completeness of any information and to get an additional free report from the company upon request within 60 days.
  • A copy of “A Summary of Your Rights under the Fair Credit Reporting Act.”

It’s also necessary to follow any state and local requirements for the use of Consumer Reports in taking Adverse Action based on the jurisdiction where the consumer lives and where they would have been working.

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Before you take adverse action based on information contained in a Consumer Report, you must provide the consumer notice of your intention.

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