Background checks are a big part of today’s hiring process. In fact, 96% of employers now use some type of background screening. That’s why it’s so important to know your rights under the Fair Credit Reporting Act (FCRA), whether you’re applying for a job or hiring someone. This federal law, created in 1970, sets the rules for how background check data is collected, shared, and used.

Mistakes in background checks can have serious consequences. A study in the journal Criminology found that over half of participants had at least one false-positive error, and nearly 90% had a false-negative. These errors can cost people jobs, income, and peace of mind.

For employers, failing to follow the FCRA can lead to major legal and financial problems. In 2023, a job seeker sued a background check company after being incorrectly labeled a convicted murderer. This case highlights how critical it is for employers to get it right.

This guide breaks down everything you need to know about the Fair Credit Reporting Act (FCRA) and how it applies to employment background checks. We’ll cover important topics like what employers need to do to stay compliant, how criminal background checks work, the process for disputing errors, and key compliance steps. 

Whether you’re an employer wanting to follow the rules or a job seeker looking to protect your rights, this article has the answers you need to navigate FCRA background checks with confidence.

What is the Fair Credit Reporting Act (FCRA)?

The Fair Credit Reporting Act (FCRA) is a federal law designed to protect the accuracy, fairness, and privacy of consumer information, like credit reports and background checks. Its goal is to ensure that personal data is handled responsibly.

While the FCRA is often associated with credit reports, it also covers other consumer data, including criminal records, employment history, and personal information. For employers, it provides clear rules for conducting background checks, ensuring job applicants and employees are treated fairly.

FCRA compliance isn’t optional for employers. The law requires specific steps during the background check process:

• Clearly informing the applicant about the background check.
• Getting written permission before proceeding.
• Properly managing any negative information found.
• Providing copies of the report if the applicant asks for it.

Failing to follow these rules can lead to serious consequences. For example, in 2019, a major retailer paid $6.8 million in a settlement over allegations of improper background check disclosures.

What is an FCRA Background Check?

An FCRA background check is a detailed screening process that follows the rules of the Fair Credit Reporting Act (FCRA). It covers a variety of personal data, such as credit history, criminal records, employment history, and education.

FCRA-compliant background checks serve multiple purposes:

1. Verifying applicant-provided information.
2. Assessing potential reliability issues.
3. Identifying possible security risks.

Employers must follow specific procedures to maintain FCRA compliance:

1. Clearly explain to the applicant that a background check will be conducted.
2. Get the applicant’s written consent before starting the check.
3. Use background check providers that meet FCRA standards.
4. Follow proper steps if negative results affect a hiring decision, known as adverse action procedures.

These steps ensure a fair process for both employers and job seekers.

What are the Employer Responsibilities Before Requesting a Background Check?

Under the Fair Credit Reporting Act (FCRA), employers must follow specific steps to protect applicant rights and maintain transparency in the hiring process:

• Provide Clear Disclosure: Employers must give applicants or employees a clear, standalone disclosure stating that a background check will be conducted. This document must be separate from other application materials.

• Obtain Written Authorization: Employers need to get the applicant’s explicit written consent before initiating a background check. Consent can be electronic but must be properly documented.

• Certify Compliance to the Provider:
  
  Employers must confirm to the background check provider that:

• Authorization has been obtained.
• FCRA rules will be followed.
• The information won’t be misused.

• Use an FCRA-Compliant Provider: It’s essential to choose a background check provider that complies with FCRA standards. These providers ensure accurate and lawful reporting, reducing the risk of legal issues.

• Avoid Discrimination: Employers must follow anti-discrimination laws enforced by the Equal Employment Opportunity Commission (EEOC). Background check decisions must not be based on race, nationality, sex, religion, disability, genetic information, or age.

FCRA Background Check Disputes: Rights of Job Applicants and Employees

The Fair Credit Reporting Act (FCRA) grants job applicants and employees specific rights regarding background check disputes. These rights ensure fairness and accuracy in the employment screening process. Here’s a comparison of key rights:

These rights empower job applicants and employees to ensure the accuracy of their background check reports. 

If an individual believes their rights have been violated, they can file a complaint with the Equal Employment Opportunity Commission (EEOC) or seek legal advice from an experienced employment law attorney.

How to Conduct an FCRA-Compliant Background Check?

If you’re conducting a background check, following the Fair Credit Reporting Act (FCRA) is essential to ensure fairness, accuracy, and transparency. With 95% of employers now running background checks, staying compliant is more important than ever.

Step 1: Provide a Clear Disclosure

• Give applicants a standalone, written document stating your intent to conduct a background check.
• Avoid mixing this disclosure with other forms or adding extra information.
• Why it matters: In 2019, a major retailer paid $6.8 million for failing to follow FCRA disclosure rules.

Step 2: Get Written Authorization

• After the disclosure, secure written consent from the applicant.
• This ensures they understand and agree to the process.
• Pro tip: Clear communication at this stage can reduce legal risks by up to 75%.

Step 3: Choose a Reputable, FCRA-Compliant Provider

• Work with a background check provider that strictly follows FCRA rules.
• These providers may cost more but ensure accurate, legal data collection and protect you from compliance issues.

Step 4: Review the Report Carefully

• Check the report for errors.
• Did you know? 1 in 5 consumers has an error on at least one of their credit reports, according to a Federal Trade Commission study.

Step 5: Send a Pre-Adverse Action Notice (If Needed)

• If the report contains information that may affect your hiring decision, send the applicant a pre-adverse action notice.
• Include a copy of the report and a summary of their FCRA rights.

Step 6: Allow Time to Respond

• Give applicants 5–10 business days to review the report and dispute any errors.
• This waiting period ensures a fair process for everyone.

Step 7: Issue an Adverse Action Notice (If Necessary)

• If you decide not to hire based on the report, send a final notice.
• Include:
  • The background check company’s contact information.
  • Instructions on how the applicant can dispute the report or request a free copy within 60 days.

How Do Fair Credit Reporting Act Criminal Background Checks Work?

FCRA criminal background checks require employers to follow key steps to ensure fairness and transparency.

Employers must inform applicants that they will be conducting a criminal background check and get their written consent. If the results of the check may impact the hiring decision, the employer must provide a copy of the report to the applicant. This gives the applicant a chance to review the information and dispute any inaccuracies.

In short, employers must be clear, get consent, and allow applicants to challenge any errors in their criminal record. This ensures the process is fair and follows the rules set by the FCRA.

What are the Consequences of FCRA Non-Compliance?

Non-compliance with the Fair Credit Reporting Act (FCRA) can lead to serious consequences for employers, including:

1. Legal Ramifications: Employers may face lawsuits from affected applicants or employees, resulting in penalties like:
   • Statutory damages between $100 and $1,000 per violation.
   • Actual damages.
   • Punitive damages.
   • Attorney’s fees.

2. Financial Impact: FCRA-related settlements have cost companies over $325 million in the last 10 years. For example, TransUnion paid a $60 million settlement in 2020.

3. Reputational Harm: Non-compliance can damage an employer’s reputation, making it harder to:
   • Attract top talent.
   • Keep current employees and stakeholders satisfied.
   • Maintain consumer trust.

4. Operational Disruptions: Legal issues and fines can distract from the business’s core operations, consuming valuable resources.

5. Government Enforcement: Federal and state agencies may investigate non-compliant employers, leading to fines, sanctions, and legal proceedings.

6. Criminal Liability: If employers obtain consumer reports under false pretenses, they could face:
   • Fines.
   • Imprisonment.

FCRA compliance is crucial for employers to avoid these serious risks.

What to Do If Your Employer Violates the FCRA?

If you believe an employer has violated the Fair Credit Reporting Act (FCRA), it’s important to take quick and strategic action to protect your rights. Here’s what you can do:

Document the Violation

Keep detailed records of everything related to the violation, including:

• Copies of background check reports
• Emails and letters from your employer
• Notes on any verbal communications
• Details of any adverse actions taken
• Evidence of harm caused (financial or reputational)
  These records are essential if you decide to take legal action.

Challenge Inaccuracies

If there’s incorrect information on your background check, dispute it right away. The FCRA requires consumer reporting agencies to investigate disputes within 30 days.

• Send your dispute via certified mail with a return receipt.
• Include any supporting documents.
• Ask for the incorrect information to be removed or corrected.
• Keep copies of everything you send.

Consult an Attorney

FCRA cases can be complicated, so it’s wise to speak with an attorney who specializes in this area. A lawyer can:

• Evaluate the strength of your case
• Explain possible remedies and damages
• Help you navigate the legal process
• Negotiate with employers or credit agencies
  For example, TransUnion paid a $60 million settlement in 2020 for FCRA violations, showing how much compensation can be involved.

File Complaints with Federal Agencies

You can report violations to agencies that can investigate, like:

• Consumer Financial Protection Bureau (CFPB)
• Federal Trade Commission (FTC)
  These agencies have the authority to fine non-compliant employers. In 2019, the FTC fined a background screening company $2.6 million for FCRA violations.

Consider Legal Action

If other methods don’t work, a lawsuit might be necessary. FCRA lawsuits can seek:

• Actual damages
• Statutory damages (up to $1,000 per violation)
• Punitive damages for willful violations
• Attorney’s fees and court costs
  Class action lawsuits have resulted in major payouts—Amazon and Uber paid over $300 million combined in recent settlements.

Act quickly, as FCRA claims must be filed within two years of discovering the violation. By documenting the issue, disputing errors, consulting legal experts, and filing complaints, you can take steps to address FCRA violations and protect your rights.

Protect Your Rights: Speak with an FCRA Expert

Has your credit report been mishandled? Don’t let FCRA violations impact your future. At Haseeb Legal, our seasoned attorneys specialize in credit reporting law and are committed to safeguarding your rights.

As one of the most active consumer litigation firms in Chicago, we’ve helped countless clients recover damages for FCRA violations. Our track record of success has earned us recognition from Super Lawyers, USA Today, NewsNation, and Law360.

Take the first step towards justice. Schedule a free consultation with our award-winning team and learn how we can help you seek compensation for the harm you’ve experienced.

Contact Haseeb Legal’s FCRA Specialists Today