Originally passed as an amendment to the Consumer Credit Protection Act in 1970, the Fair Credit Reporting Act (FCRA) is a federal law governing the collection, dissemination and use of consumer credit information. Just because it contains the word “consumer,” however, doesn’t mean employers are omitted from its laws. In fact, Uber Technologies — the service which connects people to cabs, taxis and private transport — was recently slapped with a class-action lawsuit for violating the FCRA.
Is Your Business Subject To FCRA Laws?
It’s a common assumption that consumer reporting agencies (e.g. TransUnion, Experian, Equifax) are the only entities subject to FCRA laws. However, credit card companies, banking institutions, auto loan companies, and even employers (assuming they obtain employee background checks) are also required to follow the FCRA.
The FTC explains, “a business that uses consumer reports for employment purposes has to comply with the FCRA, too. Failing to implement any of the accuracy, dispute, or other safeguards required by the law could harm people’s reputations and employment prospects.”
The Costly Impact of Neglecting FCRA Laws
Willful noncompliance of the Fair Credit Reporting Act can place a heavy financial burden on a company. The law states that consumers, or employees, are entitled to a maximum of $2,500, as well as attorney’s fees. If an employer fails to provide five prospective job candidates with a copies of their background check, and the five individuals file a lawsuit, the employer could be subject to a fine of $12,500 plus the cost of attorney fees. The statue of limitations for FCRA noncompliance is five years from the date of discovery.
Tips To Ensure FCRA Compliance:
- Before turning down a job candidate, the employer must provide him or her with a copy of the report which was used to make this decision, as well as a copy of (A Summary of Your Rights Under the Fair Credit Reporting Act.” (note: the latter is provided by the background screening/reporting company).
- The employer must ask job candidates for written permission to legally obtain a background report under the FCRA.
- Give job applicants ample time to respond to background reports (e.g. don’t send adverse action notices immediately after sending the applicant a copy of his or her report).
- If an employer takes adverse action against a job applicant based on his or her background report, the employer must provide the applicant with the name and phone number of the company used to obtain the report.
Check out our previous blog post for some essential tips on how to avoid poor hiring decisions.
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