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FCRA and State Law Compliance

Among the information reported from a background investigation, credit reports and criminal history concern employers the most. There are restrictions to the information that can be used and how it can be used from a background check.

Federal Credit Reporting

According to the U.S. Attorney General’s 2006 report on background checks, the FCRA (Fair Credit Reporting Act of 1970) regulates the use of criminal history record information by consumer reporting agencies for employment, credit, and certain other purposes. Under the FCRA, a consumer reporting agency may only provide a consumer report to a party when the agency has reason to make a credit determination, an employment determination, an insurance underwriting determination, or otherwise in connection with a legitimate business need in a transaction involving the consumer or pursuant to written instructions of the consumer. If a customer makes a false representation about its purpose for requesting the consumer report, there are penalties under the FCRA, although the penalties do not always deter persons from lying about their eligibility to receive a consumer report.

Business and nonprofit organizations that seek to protect consumers will also protect themselves from liable and earn the community’s respect in ethical and legal matters. Below is information from the U.S. Attorney General regarding FCRA that businesses and organizations will find useful:

A consumer reporting agency that furnishes a consumer report for employment purposes containing public record information, including criminal history records, which is “likely to have an adverse effect upon a consumer’s ability to obtain employment,” must either provide the consumer with notice at the same time that the information is reported to the potential employer or “must maintain strict procedures” to ensure that the information is complete and up-to-date.

A consumer must be notified when information is used to take an action against him or her, such as the denial of employment. In such cases, the party denying the benefit must provide the consumer with information on how to contact the consumer reporting agency that provided the information.

Consumer-reporting agencies must, upon request within any 12-month period, provide a consumer, without charge, with a copy of that consumer’s file, as well as a listing of everyone who has requested it recently.

Consumers are permitted to request a correction of information they believe to be inaccurate. The consumer reporting agency must investigate unless the dispute is frivolous. If changes were made, the consumer reporting agency must also send a written investigation report to the individual and a copy of the revised report. The consumer may also request that corrected reports be sent to recent recipients. If the dispute is not resolved in the consumer’s favor, the consumer has the option of including a brief statement to the consumer’s file, typically for distribution with future reports.

Consumer reporting agencies must remove or correct unverified or inaccurate information from its files, typically within 30 days after the consumer disputes the information.

In most cases, a consumer reporting agency may not report negative information that is more than seven years old (including arrest information in connection with positions where the salary is less than $75,000), or more than 10 years old for bankruptcies. A 1998 amendment to the FCRA permits inclusion of criminal conviction information without time limitations.

Consumers can sue for violations or seek assistance from the Federal Trade Commission and other federal agencies responsible for the enforcement of the FCRA.

State Consumer Reporting:

In addition to the FCRA, there are state consumer reporting laws, such as in California, that are more restrictive than the FCRA in the criminal history information that may be reported by a consumer reporting agency. Such state laws may also have more stringent procedures for confirming the accuracy and currency of the information before it is reported to a user.

As explained in a recently published SEARCH report on the commercial sale of criminal history record information:

• Approximately one-half of the States have their own fair credit reporting statutes. Many include provisions similar to those in the Federal FCRA, but some are even more restrictive. State law is fully preempted with respect to certain specified FCRA provisions. In the case of FCRA provisions that are not fully preempted, State law is preempted only to the extent that it is inconsistent with the FCRA. This has been interpreted to mean that State law is preempted only when compliance with an inconsistent State law would result in violation of the FCRA. In general, there is no inconsistency if the State law is more protective of consumers. Many state fair credit reporting laws impose obligations on credit reporting agencies and end-users that differ from those imposed by the FCRA without being inconsistent, making compliance with all applicable laws complicated. For example, in at least four States (California, Montana, Nevada, and New Mexico), a consumer reporting agency may not report convictions that are more than 7 years old, even though the FCRA imposes such a time restriction only on the reporting of arrests, and has no limitation on convictions. Also, unlike the FCRA, California, New Mexico, and New York preclude the reporting of arrests that do not result in convictions.

• In addition, some States set the employee’s expected salary level, which governs the applicability of time limits on reporting arrest information, at levels differing from that set in the FCRA. Whereas the FCRA imposes the 7-year restriction on the reporting of arrest information if the expected salary is less than $75,000, the laws in at least four States impose the 7-year restriction on the reporting of arrests only if the employee or applicant is expected to earn less than $20,000 per year. Unlike the FCRA, these States also impose the 7-year restriction limit on the reporting of convictions if the expected salary is less than $20,000. Some State laws also impose disclosure requirements that differ from those in the FCRA. For example, in some States, employers must provide employees/applicants with a copy of the consumer report they obtain for employment purposes, regardless of whether they take any adverse action in reliance upon the report. In addition, California requires end-users, including prospective or current employers, to disclose to the consumer any information gathered on the person’s character, general reputation, personal characteristics, or mode of living, including criminal justice information, even if the employer itself obtains the information directly without using a consumer reporting agency.

(from the 2006 U.S. Attorney General Report on Background Checks)


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