Background Check Industry Will Continue to Both Expand and Consolidate Simultaneously in 2016

Written By ESR News Blog Editor Thomas Ahearn

Judging by the number of background check firms being bought and sold in the past few years and the number of new start-ups entering the background check business, the screening industry will continue to both expand and consolidate simultaneously in 2016. This is the number 3 trend selected by Employment Screening Resources® (ESR) Founder and CEO Attorney Lester Rosen for the 9^th annual ESR Top Ten Background Check Trends for 2016.

“With the growing economy and tight competition, we are seeing larger firms showing a renewed emphasis on attempting to acquire market share by acquisitions,” says Rosen, author of ‘The Safe Hiring Manual’ and a noted background check expert. “At the same time, new entrants with a business or technology background see screening as merely moving around data and figure how hard can that be. There are also firms and investors in the human capital space that see screening as an easy adjunct to what they are already doing. Since there are few barriers to entry and nearly anyone can call themselves a screening firm, new firms will continue to pop-up.”

Rosen, a frequent speaker on background check issues, says that “the problem with both models is that background screening is not about just providing raw data, but is a professional service that is heavily regulated by lawsuits, government regulation and supervision, and new legislation every year. Employers rightfully expect a high level of customer service and accuracy, as well as domain and compliance expertise, from a background check provider.”

It is easy to see why so many people are interested. According to a Background Check Industry Market Research Report from IBIS World, the U.S. screening industry is forecast to earn $2 billion in yearly revenue with an annual growth of 2.2 percent over the next 10 to 15 years. The report found that background check operators will benefit from a slow improvement in the labor market.

A solid November 2015 Jobs Report released by the Department of Labor’s (DOL) Bureau of Labor Statistics (BLS) helped growth in the background check industry by revealing that 211,000 jobs were added to the U.S. economy during the month. In addition, the unemployment rate and the number of unemployed persons remained unchanged at 5.0 percent and 7.9 million respectively.

As an example of the ongoing consolidation in the background check business, one of the world’s largest screening companies announced it had acquired a competitor in November 2015. According to a press release about the sale, the acquisition continued the company’s multiyear strategy of domestic and global expansion. Terms of the transaction were not disclosed.

As reported by the ESR News Blog, another background check provider acquired a screening industry competitor in November 2013. ESR News also reported on the sale of background check companies to their competitors in June 2010 and January 2013, and also reported the attempted sale of a private-sector background check provider in July 2013 and January 2014.

“For employers, when an HR service provider is acquired by a larger player, employers may find that over time that they are dealing with new people, technology and processes and the results can be mixed,” Rosen says.

Because of growth and consolidation, Rosen predicts many established background check companies will look to “get a larger slice of a growing pie” while new entries into the background check industry will look to “get some kind of a piece of that same pie.” But Rosen warns that these late entries into the background check industry may incorrectly assume that they are only data brokers aggregating information instead of needing strict legal compliance with the myriad of background check laws.

In addition, many organizations that are considering entering the screening market are surprised at not only the complexity and laws surrounding the process, but also the explosion in class action lawsuits regarding the federal Fair Credit Reporting Act (FCRA) and governmental enforcement from the Consumer Financial Protection Bureau (CFPB) and the U.S. Equal Employment Opportunity Commission (EEOC).

In 2015 alone, companies such as Food Lion, Home Depot, Chuck E. Cheese, BMW, Whole Foods, and Calvin Klein paid FCRA class action lawsuit settlements ranging from $716,400 to $3 million. In October 2015, the CFPB ordered two of the nation’s largest employment background check firms to pay a total of $13 million – $10.5 million in relief to harmed consumers and a $2.5 million civil penalty – for allegedly failing to ensure information reported about job applicants was accurate. In September 2015, BMW paid a $1.6 million settlement to resolve a lawsuit filed by the EEOC that claimed BMW’s criminal record background check policy disproportionately affected African-American workers.

One way to help an employer choose from the wide number of available screening vendors is to look for background check firms that are accredited. The National Association of Professional Background Screeners (NAPBS) offers a Background Screening Agency Accreditation Program (BSAAP) for U.S. background check firms. The BSAAP is a widely recognized seal of approval that recognizes excellence, accountability, high professional standards, and continued institutional improvement of screening firms.

To become NAPBS accredited, a background check firm must pass a rigorous onsite audit, conducted by an independent auditing firm, of its policies and procedures as they relate to six critical areas of the BSAAP: Consumer Protection, Legal Compliance, Client Education, Product Standards, Service Standards, and General Business Practices. A copy of the NAPBS Accreditation standard, the policies and procedures, and measurements is available at www.napbs.com/accreditation/.

“The fact that a background check firm is accredited does not guarantee it will do everything perfectly and firms not yet accredited may do a good job,” explains Rosen. “But at the end of the day, an NAPBS accreditation is the only objective way for an employer to evaluate if a background check firm meets threshold qualification, which is why there is a trend among employers to require background check firms be accredited as a condition of engagement.”

ESR Is An NAPBS Accredited Background Check Firm

Employment Screening Resources® (ESR), a leading global background check firm, is accredited by the National Association of Professional Background Screeners® (NAPBS) by successfully proving compliance with the Background Screening Agency Accreditation Program (BSAAP). ESR has also successfully completed a SOC 2 Type 2 audit report that confirms ESR meets high standards set by the American Institute of Certified Public Accountants (AICPA) for protecting the security, confidentiality, and privacy of consumer information. To learn more, call toll free 888.999.4474 or visit www.esrcheck.com.

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