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New regs on the Fair Credit Reporting Act; How to stay compliant

March 20, 2014

By Nicole Sitter, courtesy of SBAM Approved Partner ASE

Do you obtain consumer credit reports as part of your screening process for new employees? If so, be aware that the EEOC, with help from the Federal Trade Commission (FTC), has come out with a new round of “technical assistance” documents—i.e., regulations. Published on March 10, they are aimed at making sure you adhere strictly to the requirements of the Fair Credit Reporting Act and thus do not violate federal anti-discrimination laws.

The Fair Credit Reporting Act requires the employer to do the following before obtaining a consumer credit report on an applicant:

  • Have the applicant sign a stand-alone document stating he or she is aware that the information obtained in a consumer credit report may be used in the hiring decision.
  • If the consumer credit report will entail investigative information, such as personal references who speak to the applicants’ reputation or character, the employer must also supply the applicant with a general overview of what might be obtained in the report.
  • Have the applicant sign an authorization for the consumer credit report to be obtained. If the employer intends to obtain this report multiple times over the course of the applicant’s employment, it must clearly state that intent in the authorization.
  • Provide these documents to the company that will compile and sell them the consumer credit report. This will prove that the hiring company 1) obtained all permissions, and 2) followed all the requirements set forth by the Fair Credit Reporting Act, and in doing so agree not to discriminate against the applicant or employee, in turn violating the federal and state Equal Opportunity laws.

The Fair Credit Reporting Act regulations continue after the Consumer Credit Report has been obtained. If the employer takes an Adverse Action (i.e., rejects the applicant for hire, or hires and then terminates the applicant) based on the information in the Consumer Credit Report, then it must take certain actions:

  • It must supply the applicant with a Pre-Adverse Action Notice five days before taking the Adverse Action.  The notice must include a copy of the information used to make the adverse decision (i.e., the completed consumer credit report) as well as a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.”

Then, after the adverse employment action is taken, the employer must give the applicant the following information either orally, in writing or via electronic communication:

  • That they were rejected for the position because of information found in their consumer credit report.
  • All contact information for the company that compiled and sold the consumer report to the employer, and that the company that compiled and sold the report in no way made the adverse hiring decision and can provide no explanation for it.
  • That he or she has the right to dispute the information on the report, and the right to obtain a free report from the company that compiled and sold the consumer credit report for 60 days.
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