Any employer who regularly uses background check reports as part of the hiring process should understand their obligations under the FCRA, or Fair Credit Reporting Act, such as providing clear notification of background check procedures and providing pre-adverse action notices to candidates. However, there are other elements of the law that even experienced employers may not know.
For example, there is a stipulation within the FCRA that any entity producing consumer reports must use "reasonable procedures" to ensure that the report correlates to the subject. A recent examination of the state of the industry and its procedures by the Consumer Financial Protection Bureau, or CPFB, led to the release of a critical new advisory opinion.
The new opinion concerns name-only background checks, which some consumer reporting agencies (CRAs) offer. According to the advisory opinion, such checks fail to meet the bar of using "reasonable procedures" to ensure "maximum accuracy". Name-only checks can lead to matches with the wrong individual, especially if that individual has a common name. The CFPB now says that this fact represents a clear violation of the requirements of the FCRA.
Some reporting agencies, including backgroundchecks.com, collect more information from employers requesting reports. Businesses should be wary of CRAs that only collect a candidate's name before furnishing a report. Other personally identifiable information, especially an applicant's date of birth or Social Security Number, make it simpler for agencies to produce an accurate match with greater confidence.
Alongside the release of the new advisory, Director Rohit Chopra of the CFPB stated that collecting more information may not be enough to fully satisfy the FCRA's requirement. He suggested that such agencies may need to implement manual file reviews before releasing background reports to ensure an accurate match. Director Chopra implied that the CFPB would begin considering enforcement actions to ensure that such changes take place.
What do these statements mean for businesses that rely on employee background checks as an integral part of their hiring processes? In the short term, companies should review the procedures that they use for conducting background checks and maintaining FCRA compliance. Have they relied on name-only searches in the past? If so, upgrading to a more comprehensive reporting method is the best course of action.
Over the long term, employers should consider it a priority to partner only with CRAs that can demonstrate a proven record and a clear, compliant methodology for delivering accurate subject information for hiring processes.
While the CFPB's latest actions centered on agencies providing background check information, other businesses could generate legal liabilities by failing to fully understand their obligations under the FCRA. Implementing a policy review and creating a stronger governance structure while forging trustworthy partnerships with established CRAs can help businesses shape hiring processes that are both effective and legally compliant.