FTC Releases New Guidance for Employment Background Screening Companies to Help with FCRA Compliance

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Written By ESR News Blog Editor Thomas Ahearn

The Federal Trade Commission (FTC) has released new guidance for companies in the business of compiling background information for employment purposes called “What Employment Background Screening Companies Need to Know About the Fair Credit Reporting Act (FCRA)” in order to help these companies understand when their work defines them as a Consumer Reporting Agency (CRA) under the FCRA.

According to the FTC guidance: Thousands of employers turn to background screening companies for information about job applicants and current employees. If you’re in the business of compiling background information for employment purposes, there are two things you need to know: 1) Federal law – including the Fair Credit Reporting Act (FCRA) – applies to companies in your line of work; and 2) Employment background screening companies are typically “consumer reporting agencies” covered by the FCRA.

CRAs must meet a number of obligations outlined in the FCRA, including investigating consumer disputes and correcting inaccurate information. The FTC guidance outlines the requirements that employment background screening companies face under FCRA, including their requirements in dealing with their clients and how they interact with consumers. The FTC guidance also answers the following questions:

  • When is an employment background screening company a “consumer reporting agency”? Background screening reports are “consumer reports” under the FCRA when they serve as a factor in determining a person’s eligibility for employment, so companies that sell or provide those reports are “consumer reporting agencies” under the FCRA.
  • If your employment background screening company is a consumer reporting agency under the FCRA, what does the law require you to do? Among other things, the FCRA requires CRAs to 1) follow “reasonable procedures to assure maximum possible accuracy,” 2) get certifications from their clients that they will use the reports only for employment purposes, 3) provide clients with information about their responsibilities under the FCRA and a summary of consumer rights under the FCRA, and 4) honor the rights of applicants and employees such as conducting a reasonable investigation if they dispute the accuracy of information.
  • What if background screening reports include public record information? The FCRA has special provisions if reports contain public record information such as courthouse records and are used for employment purposes: 1) Notify the person who is the subject of the report when public record information is being reported; or 2) Maintain what the FCRA calls “strict procedures” designed to ensure that reported public record data is complete and up to date.
  • Where can I find citations to relevant portions of the Fair Credit Reporting Act? The FTC guidance cites some FCRA provisions mentioned in that publication including a definition of a “consumer report,” a definition of “employment purposes,” and permissible purpose for consumer reports.

CRAs that wish to find out more about federal laws relating to background check reports may visit business.ftc.gov or call the FTC toll-free at 1-877-FTC-HELP (1-877-382-4357).  The FTC guidance “What Employment Background Screening Companies Need to Know About the Fair Credit Reporting Act (FCRA)” is available on the FTC website at https://www.ftc.gov/tips-advice/business-center/guidance/what-employment-background-screening-companies-need-know-about.

Employment Screening Resources® (ESR) – a leading global screening firm providing fast, accurate, affordable, and compliant background screening services – offers employers two complimentary whitepapers – “Common Ways Consumer Reporting Agencies are Sued Under the FCRA” and “Common Ways Prospective or Current Employees Sue Employers Under the FCRA” – to alert them to the current rising trend of class action lawsuits being filed for alleged violations of the FCRA.

“FCRA class action lawsuits against employers and CRAs have become very common,” warns ESR founder and CEO Attorney Lester Rosen, the author of the two whitepapers as well as ‘The Safe Hiring Manual,’ the first comprehensive guide to background checks for employment purposes. “Ironically, these suits often could have been easily avoided. More often than not, employers and CRAs are sued for violating FCRA 101 – simple rules and procedures that are clearly set out in the law.”

NOTE: Employment Screening Resources® (ESR) does not provide or offer legal services or legal advice of any kind or nature. Any information on this web site is for educational purposes only.

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