With FCRA compliance litigation rising yet again in 2017, major companies such as Uber, J.P. Morgan, and Avis saw multi-million dollar settlements for FCRA noncompliance issues. According to the latest statistics from WebRecon LLC, this was the 17th year in a row these numbers have risen – with a 42 percent increase in the last three years alone.
What is the Federal Credit Reporting Act?
The federal Fair Credit Reporting Act (FCRA) regulates how employers are able to run and use background checks when hiring or promoting an employee. Before you order a report, you must obtain written permission to run the background check from the applicant or employee. In addition to this written authorization, the applicant/employee must be provided with the following two documents:
- A disclosure that states how the information obtained through the background screening report will be used. This notice must be given independently of any other paperwork, must not include extraneous information, and cannot be included on the application, for example. If you have a continuous monitoring program and intend to screen employees periodically post hire, you must include that information within the disclosure, as well. Further, if you intend to obtain an investigative consumer report (i.e., references checks), a separate disclosure for investigative consumer report must be provided to the applicant.
- A copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.” This document is required when the employer is going to obtain an investigative consumer report, however, best practice is to include the Summary of Rights with all disclosures for consumer reports. It ensures that candidates and employees understand the adverse action process, and what actions are available to them if negative information is discovered on their background screening report.
If you’re working with a third-party background screening provider, you must also certify to them that you’ve provided the applicant or employee with the required disclosure(s), and that you’ve received their written author the background check. You must also certify that you won’t misuse the information or discriminate based on the results.
Common Problems in 2017
In evaluating some of the legal cases that occurred in 2017, there were common issues that landed companies in trouble for FCRA noncompliance. Geico landed in court because they neglected to follow the required Adverse Action process – including not giving applicants a copy of the FCRA’s Summary of Rights.
Avis ran into similar pre-adverse action issues – and also failed to provide consumers with a stand-alone disclosure form. They ended up settling for $2.7 million.
Why it Matters
For HR professionals who manage their company’s background screening process, there’s a lot to learn from these numbers. Not only are there serious financial implications when FCRA rules aren’t followed precisely, but those who utilize third-party background screening providers aren’t necessarily protected: both Uber and the company who handled their pre-employment background screens were held liable in court for violating the FCRA. The lesson here? Make sure your compliance is your background screening provider's priority to ensure compliance with the FCRA rules.