UPDATED: Important Reminder of FCRA’s Adverse Action Process

Henry Wadsworth Longfellow once said “It takes less time to do a thing right than to explain why you did it wrong.” In the case of the Adverse Action process it also takes less MONEY to do things right, with fines beginning at a whopping $1,000 per infraction plus actual and punitive damages!

Employers utilizing consumer reports to make employment decisions must comply with the Fair Credit Reporting Act. This update provides a reminder of the proper Adverse Action process and both FCRA notice provisions:

  • Pre-Adverse Action
  • Adverse Action

A few years ago, we saw changes to the Fair Credit Reporting Act:

  • Enforcement of the law was moved from the Federal Trade Commission (FTC) to the newly created Consumer Financial Protection
    Bureau (CFPB). Consumers are now directed to the CFPB instead of the FTC.
  • Both of the following notices were updated to reflect the change in enforcement:
    • A Summary of Your Rights Under the Fair Credit Reporting Act
    • Notice to Users of Consumer Reports: Obligations of Users Under the FCRA

What is a consumer report? The term “consumer report” is defined broadly by the Fair Credit Reporting Act (FCRA) and includes criminal background reports, credit history reports and other background checks. Employers must comply with the FCRA if they make employment decisions (such as hiring, promotion, termination) based on a consumer report.

What is Adverse Action? “Adverse Action” is defined as a denial of employment or any other decision for employment purposes based in whole or in part on a consumer report that adversely affects any current or prospective employee. Employers that take adverse action against an applicant or employee must follow the two notice provisions of the FCRA.

First Notice Requirement

Section 604 of the FCRA requires that employers provide to the consumer, BEFORE taking any adverse action based on a consumer report, a Pre-Adverse Action letter. This letter provides the candidate with the option to respond to, and clarify, any information contained in the report that may not be accurate or complete. In addition to the letter, employers need to include a copy of the report AND A Summary of Your Rights Under the Fair Credit Reporting Act. This is referred to as Pre-Adverse Action since it must be sent before the adverse action is taken. In other words, if an employer has a report and believes that the information contained in the report may impact the hiring decision, the employer at that time must send the Pre-Adverse Action notice. Although the FCRA does not state a specific timeline, federal and legal sources recommend waiting five (5) business days, from the date of the letter, for the applicant to respond to the notice.

Second Notice Requirement

The second notice must be sent AFTER an employer takes adverse action. In the Adverse Action letter (the second notice) the employer must notify the consumer of the fact that adverse action has been taken based on a consumer report and include in that disclosure the following:

  • the name, address, and phone number of the consumer reporting agency that finished the report.
  • a statement that the consumer reporting agency did not decide to take the adverse action and is unable to provide the consumer with specific reasons for the action.
  • a notice of a consumer’s right to obtain another free copy of his or her report from the consumer reporting agency within 60 days.
  • the individual has the right to dispute the accuracy or completeness of any information in the report.

The basic steps described within this newsletter should be used as a guideline and should not be taken as legal advice. Since 1993, InfoQuest has provided employment background screening with complimentary compliance updates. Please call 843.233.9675 if you have a specific question regarding this topic.

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