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Fair Credit Reporting Act (FCRA)

Federal law imposes strict limits and disclosure requirements on an employer’s use of credit and consumer reports in making hiring decisions. The FCRA applies any time employers decide to use a third party to investigate and do background checks on applicants instead of investigating them on their own. The law specifically covers two kinds of reports — each with its own set of tedious requirements.

The Fair and Accurate Credit Transactions Act (FACT Act) – which is part of the FCRA – includes measures that are designed to prevent identity theft and other harm from a business’ improper disposal of confidential records

State-by-state comparision of 50 employment laws in all 50 states, including credit reports

Consumer reports
First, the FCRA defines consumer reports as any communication of any information by a consumer-reporting agency. The law applies any time an employer pays a third party to investigate an applicant’s credit standing or capacity, character, general reputation, or personal characteristics.

Yes, the language really is that broad and covers much more than simple credit reports. For example, it applies to criminal background checks. Before getting a consumer report, employers must disclose to the applicant that they are obtaining the report and get the applicant’s written permission.

Before using a credit report to an applicant’s disadvantage, employers first must give her a copy of the report along with a written description of her rights under the FCRA.

Once an employer makes a decision not to hire an applicant based in part on information contained in a consumer report, it’s required to notify her of the decision and supply the name and contact information of the credit reporting agency used, inform her that the employer and not the agency made the decision not to make a job offer, notify her about her right to dispute information contained in the report and the right to require an additional free copy of the report within 60 days.

Investigative reports
The FCRA defines investigative consumer reports as information relating to an applicant’s general character and reputation gathered by an agency through personal interviews with her neighbors, friends, and acquaintances.

Before receiving one of these reports, employers must:

  • disclose in writing to applicants that they are requesting a report containing information about their character, general reputation, personal characteristics, and mode of living;
  • ensure that applicants receive this disclosure no later than three days after the report is requested;
  • include in the disclosure a statement that applicants are entitled to request information about the nature and scope of the investigation; and
  • include a summary of the applicant’s right under the FCRA.