The FCRA & Background Checks: What Employers Should Know

Mary Poquette


A Note from the Editor: If you do any hiring, the FCRA is not just one of a million government acronyms floating around. It is a Federal law that hovers over every business that conducts some type of screening of their applicants and employees. Today’s guest blogger calls it the “elephant in the room.”  It can seem convoluted and intimidating if you don’t understand it. Employers of all sizes MUST understand it. Read on for a head-to-toe primer on the FCRA and what it means to your business.

What is the FCRA?

“FCRA” is the abbreviation for the “Fair Credit Reporting Act.” It is a U.S. Federal law, 15 U.S.C. 1681-1681x. It was enacted in 1970 and originally designed to help consumers resolve inaccuracies in their credit reports. Thus, the “Fair Credit Reporting Act” name. In 1996, the scope of the FCRA was expanded to include other reports about consumers, including background reports prepared for employment screening purposes. And, the FCRA has been further amended since 1996.

The FCRA is designed to protect consumers by regulating employers as users of background reports and background screening companies as providers of background reports. It applies anytime an employer obtains a background report for employment purposes from a third party. Importantly, it applies to background reports whether or not the report includes credit information.

Note: The FCRA also applies in other situations, such as background reports for tenant screening. This blog addresses the FCRA only in the employment context.

To understand the FCRA, one needs to know some of its jargon. Among the most important terms:

  • Consumer Report – The background report, which is often called a “background check.” A Consumer Report contains only factual information such as dates of employment, criminal records, and driving history.
  • Investigative Consumer Report – Also a background report, but unlike a Consumer Report, includes information obtained through personal interviews. Discussing employment performance, for example, is a personal interview. A personal or professional reference check is another example of a personal interview.
  • Consumer Reporting Agency – The background screening company preparing the background report; often referred to as a “CRA.”
  • Consumer – The person who is the subject of the background report. In the employment context, this could be an applicant for employment, a current employee, a contractor, temporary worker, or even an unpaid volunteer.
  • User – The person requesting and using the background report. The user is the typically the employer or prospective employer. The user could also be an organization, such as a non-profit or a school district.
  • Disclosure – The document used to inform the consumer s/he may be the subject of a background report.
  • Authorization – The document signed by the consumer in which s/he authorizes preparation of the background report.
  • Adverse Action – The process that must be followed when an employer is considering a negative employment decision based, in whole or part, on the background report.

Why Should You Care?

Not caring can be expensive. The FCRA requires an employer (when obtaining background reports from a third party) do very specific things during the employment process. Employers are frequently sued in federal court for alleged failure to meet these FCRA requirements. In June of 2016 alone, 409 FCRA lawsuits were filed.

Litigation is costly to employers in terms of time, legal fees, financial settlements, brand damage, and distraction from business goals. Examples of financial settlements include: Dish Network - $1.75M, Lowe’s  - $22.5M, BMW Manufacturing - $1.6M, Uber - $7.5M, Chuck E Cheese - $1.75M, Wells Fargo - $12M, Whole Foods - $803K, Home Depot - $1.8M, and Food Lion - $3M.

Another reason for caring is competition for talent. A compliant background check process from start to finish is a positive experience for the candidate or employee. It demonstrates the employer is serious about its legal responsibilities and places value on individuals. It also helps prevent the inadvertent loss of a valuable prospect or employee.

What Should You Do?

FCRA compliance is challenging, but absolutely manageable. From a broad perspective, employers should: 1) partner with an experienced, reputable background screening company that understands legal and regulatory compliance, and 2) partner with qualified legal counsel.

Ironically, some of the simplest requirements of the FCRA are most often mishandled by employers and become the basis of litigation. Employers have many responsibilities under the FCRA and among the most important are the three that follow.

1. Disclosure.  

Before requesting a background report from a CRA, the employer must inform the subject a background report may be obtained. The content and format of the disclosure is extremely important. The disclosure must be written, in a standalone document, and include only disclosure language. It should not, for example, be part of an employment application or buried in an information packet. Further, the language of the disclosure should include only the disclosure; meaning, it must not contain any extraneous information. “Extraneous” covers a wide range of topics such as company benefits, on-the-job conduct, and drug-free workplace. Especially problematic – and the basis of much class action litigation – is including a waiver of liability in the disclosure language. [FCRA §604(b)(2)(A)]

One exception is made regarding extraneous language, which is authorization language may be combined with the disclosure. This is the only exception.  

2. Authorization.

Before requesting a background report from a CRA, the employer must obtain the subject’s written consent. (Electronic signatures in compliance with E-SIGN requirements are acceptable.) The authorization may be combined with the disclosure but, as noted earlier, no other extraneous information may be included.

The FCRA does not require specific language, only specific content and format. Whether separate documents or combined, the language of the disclosure and authorization must be clear and concise. It should be very, very obvious to the reader that s/he may be the subject of a background report and s/he is authorizing preparation of the background report. [FCRA §604(b)(2)(A)]

Note: Some states have specific content requirements in addition to those of the FCRA.

3. Adverse Action.

Any time an employer is considering a negative employment action – not hiring, not promoting, not retaining – based in whole or part on information in a background report, the employer must follow the multi-step FCRA adverse action process.

Adverse Action Step 1:  

The employer must notify the subject of the background report an adverse employment decision is being considered. It is important the notice makes clear a final decision has not been made. In addition to providing notice, the employer must:

  • Provide a copy of the background report
  • Provide a federal notice entitled, “A Summary of Your Rights under the Fair Credit Reporting Act.” (Note: Some states require a state specific notice also be provided.)
  • Inform the subject s/he has the right to dispute information in the background report and how to initiate a dispute
  • Inform the subject s/he has a certain number of days in which to initiate a dispute

The FCRA does not specify the notice be written; however, a written notice provides clarity for the subject of the background report and also creates an important audit trail. This step is often referred to as “Pre-Adverse Action.”

The law permits a background screening company to provide the pre-adverse notice on behalf of its employer client. The background screening company, however, cannot make the decision to initiate the process. [FCRA §604(b)(3)]

Adverse Action Step 2:  

The employer must wait the designated number of days, thus giving the subject of the background report time to initiate a dispute.

  • The FCRA does not specify the number of days an employer must wait. The Federal Trade Commission offered an opinion letter stating five days seemed reasonable. (Note: Some state and local laws require a waiting period longer than five days.)
  • During this waiting period, the employer should not do anything to suggest a final negative employment decision has been made. For example, an HR representative should not inform the candidate there was “a problem with your background report” or “an adverse action notice is being sent to you.” Statements such as these may be interpreted to mean the employment decision has already been made.
  • If the subject of the background report chooses to dispute information in the background report, s/he will contact the screening company. The screening company, in turn, will inform the employer of the dispute and begin a re-investigation.

The re-investigation may change the background report. If so and the results are acceptable, most often the employer decides to move forward with the employment action. However, sometimes the re-investigation will not change the background report or the subject of the background report will not dispute the results. In these situations, following the conclusion of the waiting period, the employer will move forward with the employment decision. [FCRA §604(b)(3)]

Note: The U.S. Equal Employment Opportunity Commission (EEOC) issued guidance regarding the use of criminal records in employment decisions. If a criminal record is the reason a negative employment decision is being considered, the EEOC strongly recommends the employer conduct an “individualized assessment” prior to making a final employment decision.

Similarly, some states and localities require special criminal history assessment forms or notices be used.

Adverse Action Step 3:  

If the employment decision is negative, the employer must inform the subject of the background report by providing a second notice. (This is the actual “Adverse Action” step.) This second notice must include certain information.

  • The adverse action being taken
  • The name, address, and toll-free number of the background screening company
  • A statement the screening company did not make the decision and cannot provide reasons for the decision
  • A statement informing the subject of their right to obtain a free copy of background report from screening company within 60 days
  • A statement informing the subject of their continuing right to dispute accuracy or completeness of report

The FCRA does not specify the adverse action notice be written; however, it is common practice to provide the notice in writing due to content requirements and the importance of recordkeeping.

The law permits a background screening company to provide the adverse action notice on behalf of its employer client. The background screening company, however, cannot make the adverse decision.

The FCRA has other requirements. However, these three – disclosure, authorization, and adverse action – most often form the basis of litigation. Prudent employers will review and frequently audit their practices in these high risk areas. [FCRA §615(a)]

A Word of Caution

Following the FCRA is critically important when using background reports from a third party as part of an employment decision. It is not, however, the only law or regulation that is important. Details are beyond the scope of this blog, but other law and regulation impacting users (and providers) of background reports include:

  • State FCRA Laws. Several states have their own version of the FCRA and, in some cases, add requirements in addition to those of the Federal FCRA. Examples include requiring specific content in disclosure, authorization, or adverse action notices.
  • Ban the Box. Enacted at the state and local level, ban the box laws and ordinances typically control when in the employment selection process an employer may inquire about criminal history. Also known as “Fair Chance Laws or Policies,” some ban the box laws go further and impact the evaluation, notification, and adverse action processes. Currently nine states and 25 localities have ban the box laws applicable to private employers. (In total, there are over 150 ban the box laws, about 75% of which are applicable only to public employers, such as government agencies.)  
  • Credit Inquiry. Some states and cities limit when credit may be part of a background check and/or require special authorizations. Examples include California and New York City.  
  • Criminal Inquiry and Reporting. Some states limit an employer’s scope of inquiry about criminal history, while some states limit the criminal history a background screening company may report.  
  • International Requirements. Some employment candidates may have academic, employment, or residential history outside the U.S. Conducting background checks outside the U.S. is now very common, but employers should expect additional compliance requirements when seeking information from other countries.


Compliance in background screening is complicated, and the FCRA is the “elephant in the room.” Employers cannot afford to ignore it. The good news is the highest risk elements of the FCRA are the easiest with which to comply. Employers need a well-crafted screening program, ongoing auditing, and an expert screening partner with a burgeoning compliance toolkit.

Employer Guide to Adverse Action


Background Checks, EEOC & FCRA

Mary Poquette

Posted By: Mary Poquette

Mary Poquette is a 20-year veteran of the background screening industry and is founder and CEO of Poquette Screening Solutions. A recognized industry leader, she is a subject matter expert on legal and regulatory compliance in background screening, including the Fair Credit Reporting Act (FCRA). She holds NAPBS Advanced FCRA Certification and is a Certified Information Privacy Professional.