Blogging background checking and security issues


Adverse Action – Applicant Rights and Employer Obligations

Job applicants are given certain rights by the Fair Credit Reporting Act when it comes to adverse, or negative, information on their consumer report. Consumer report is the term used by the FCRA that refers to the "background check" report provided by a consumer reporting agency. The definition of adverse action by the FCRA is as follows:

(i) a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance, existing or applied for, in connection with the underwriting of insurance;

(ii) a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee;

(iii) a denial or cancellation of, an increase in any charge for, or any other adverse or unfavorable change in the terms of, any license or benefit described in section 604(a)(3)(D) [§ 1681b]; and

(iv) an action taken or determination that is

(I) made in connection with an application that was made by, or a transaction that was initiated by, any consumer, or in connection with a review of an account under section 604(a)(3)(F)(ii)[§ 1681b]; and

(II) adverse to the interests of the consumer.

It obviously covers more than employment, but that’s all I’m going to discuss here. I don’t want to bore you with legal documentation, but here is the exact wording from the FCRA regarding requirements of users of consumer reports. In our discussion, users of consumer reports are employers and consumer reporting agencies are background screening companies used by the employers.

(a) Duties of users taking adverse actions on the basis of information contained in consumer reports. If any person takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report, the person shall
(1) provide oral, written, or electronic notice of the adverse action to the consumer;

(2) provide to the consumer orally, in writing, or electronically

(A) the name, address, and telephone number of the consumer reporting agency (including a toll-free telephone number established by the agency if the agency compiles and maintains files on consumers on a nationwide basis) that furnished the report to the person; and

(B) a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken; and

(3) provide to the consumer an oral, written, or electronic notice of the consumer's right

(A) to obtain, under section 612 [§ 1681j], a free copy of a consumer report on the consumer from the consumer reporting agency referred to in paragraph (2), which notice shall include an indication of the 60-day period under that section for obtaining such a copy; and

(B) to dispute, under section 611 [§ 1681i], with a consumer reporting agency the accuracy or completeness of any information in a consumer report furnished by the agency.

What all of this means is that if an employer chooses to deny employment to a job applicant based on the information reported by the background screening company, the employer must notify the applicant and give him a chance to respond. The employer is not required to adhere to the FCRA’s adverse action policy if the decision not to hire is based on information outside the consumer report.

If the applicant wants to dispute the information, he is directed to the background screening company and the information the applicant claims is incorrect should be re-investigated. If you work with a background screening company that doesn’t have a process in place for handling applicant disputes, look for a new company to do your background checks.

Does this really happen often? In addition to the problems with database searches, the actual court records themselves often contain errors. The adverse action process is on the side of the applicant. It gives applicants the opportunity to work with the appropriate agency to correct erroneous information.

There are a few exceptions, but most courts willingly work with individuals to address problems with their data. The problem applicants have is that companies that have compiled databases from public courthouse records don’t, as far as I know, have any incentive to take the time to correct their records. The final report has to be corrected each time the information is used adversely by an employer, but if the background screening company isn’t the same company as the one that houses the database with faulty information then the consumer report provided by the screening company will be changed but the database will most likely not be corrected.

Also noteworthy, the states of California (surprise surprise), Oklahoma and Minnesota all require employers to provide a place on their applications where job applicants can choose to receive or decline to receive a copy of their report. In all states applicants are allowed to request a copy of the report, but in these states they are directly notified of their right.

Adverse action protects the interests of the consumer. I don’t have the information off-hand, but there have been cases where large companies have had to pay very hefty damages for not following the adverse action process outlined by the FCRA. Even though precedent has been set for the enforcement of adverse action, there are still a number of companies that are either ignorant of it or that choose not follow it. Doing so denies individuals the opportunity to correct information that will adversely affect them in the future.


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