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Taking a closer look at FCRA’s Pre-Adverse & Adverse Action Process

If your organization is planning to run employee or applicant background screening in Buffalo, NY, your process must follow federal, state and local regulations. This includes the Fair Credit Reporting Act.

What is the Fair Credit Reporting Act?

Passed in 1970, the Fair Credit Reporting Act or FCRA seeks to promote the accuracy, fairness and privacy of consumer information. The FCRA is the primary law regulating employment background checks. Unfortunately, the word “credit” in the title can be misleading as the law applies to ALL data collected by a third party. This may or may not include credit reports.

How Does the FCRA Apply to Hiring?

Let’s say your company finds a great candidate. You run a pre-employment background screening, and Oh No! You find lots of negative information. What do you do? The answer may seem simple. Don’t hire, but now your organization could face a lawsuit. Why? If you used a third-party Credit Reporting Agency or CRA, you must follow the FCRA’s pre-adverse and adverse action process.

What are Pre-Adverse and Adverse Actions?

A pre-adverse action is a plan to reject a candidate or employee. An adverse action is a final decision. Adverse actions include not hiring and firing as well as denying promotions, new placements, and transfers.

How Can Your Organization Stay Compliant?

Begin by following these basic steps.

Step 1

Before running a background check, inform the candidate or employee your company may use this information to make employment-related decisions. Each person must complete a signed authorization and/or disclosure form.

Step 2

If you are considering rejecting a candidate or employee, send them three items: 1) a Pre-Adverse Action Letter or Notice; 2) a copy of the background report; 3) a copy of A Summary of Your Rights Under the Fair Credit Reporting Act.

Step 3

Give the candidate an adequate amount of time to file a dispute with the Credit Reporting Agency. Mistakes happen, and the data may be inaccurate or incomplete. The Federal Trade Commission (FTC), which enforces the FCRA, says a minimum of 5 business days is reasonable. However, this varies by state, county, and municipality.

Step 4

If the applicant doesn’t respond or provides an insufficient explanation, your company may proceed with an Adverse Action Notification. The FCRA requires this document to contain the following: 1) a statement that the adverse action is based on the information in the background report provided by a CRA; 2) the name, address, and toll free telephone number of the CRA used; 3) a statement that the CRA supplying the report was not involved in the decision and cannot give specific reasons for it; 4) a notice of the applicant’s right to another free consumer report within 60 days; 5) a notice of the applicant’s right to dispute the provided information.

Could Your Company Use Help with Background Checks?

Metrodata Services is Western New York’s leading pre-employment screening firm. Our expert staff allows you to make the best possible hiring decisions and to successfully navigate any applicable laws and regulations. Learn more about the Services We Offer.