When hiring new employees, background checks are often a crucial part of the process. But navigating the legalities of the Fair Credit Reporting Act (FCRA) can be a minefield for employers. With steep fines, lawsuits, and reputational damage on the line, background check violations are a compliance nightmare you can’t afford to ignore.
This post outlines the most common FCRA violations, why they happen, and how to ensure your employment practices meet FCRA standards. By the end, you’ll have actionable steps to protect your company and streamline compliance.
What Is the FCRA and Why Should Employers Care?
The Fair Credit Reporting Act is a federal law enacted to promote fairness, accuracy, and privacy in consumer report information. This includes background checks used in employment decisions. For employers, this means strict guidelines around obtaining consent, using the reports properly, and notifying candidates of adverse actions (such as not hiring someone based on their report).
Violating the FCRA can lead to costly fines, legal battles, and diminished trust in your company. Even honest mistakes can trigger lawsuits, as shown by multimillion-dollar settlements involving companies that failed to adhere to FCRA guidelines.
Common FCRA Compliance Violations
There are several pitfalls employers must avoid when performing background checks. Here’s a breakdown of the most prevalent compliance issues:
1. Failing to Obtain Proper Authorization
Before running a background check, you must obtain the candidate’s explicit permission through a standalone disclosure and authorization form. Many companies make mistakes here by including this in other employment documents or burying it in fine print.
How to Avoid It: Always provide a separate form that clearly states the background check process, ensuring the candidate fully understands what they’re authorizing.
2. Adverse Action Failures
If you decide not to hire someone based on their background check, you’re required to follow the adverse action process:
- Provide a “pre-adverse action” notice with a copy of the report and a summary of FCRA rights.
- Allow the candidate to dispute errors.
- Send a final adverse action notice if the decision remains unchanged.
Skipping or mishandling any of these steps is a major compliance risk.
How to Avoid It: Implement a clear adverse action policy and follow it precisely. Using automated HR software that flags each step can reduce human error.
3. Relying on Old or Incorrect Information
The FCRA mandates that consumer reporting agencies provide accurate and up-to-date information. However, employers are liable if they act on outdated or incorrect data when making hiring decisions.
How to Avoid It: Partner with reputable background check providers and verify that their reports meet FCRA standards for accuracy.
4. Misusing Consumer Data
Using information from background reports for anything other than the intended employment purpose is a direct FCRA violation.
How to Avoid It: Limit access to sensitive information within your organization and establish clear policies about how it can be used.
5. Neglecting State Law Requirements
While the FCRA is a federal law, individual states may have additional laws that expand or restrict how background checks can be used. Compliance with FCRA does not exempt employers from following state-specific rules.
How to Avoid It: Regularly review both federal and state laws related to background checks, or consult with legal counsel to ensure you’re fully compliant.
Strategies for Staying FCRA Compliant
1. Train Your Team
HR personnel and hiring managers must understand FCRA regulations. Offer regular training sessions and updates to ensure your team stays informed on the latest requirements.
2. Work with Integrated Background Check Providers
Choose a provider that specializes in FCRA compliance and offers automated systems to streamline processes like disclosures and adverse action notifications.
3. Audit Your Practices
Conduct regular internal audits of your hiring processes to identify potential compliance issues before they escalate.
4. Consult Legal Experts
Having a legal professional review your documentation and procedures ensures you’re staying within the boundaries of the law.
5. Monitor Legal Updates
Employment laws are constantly evolving. Stay on top of FCRA regulation changes and state-level updates to avoid falling behind.
The High Cost of Non-Compliance Isn’t Worth It
FCRA violations can cost companies millions of dollars—both in penalties and bad PR. With proper systems, processes, and awareness, you can dodge these compliance nightmares and focus on finding the best talent for your business. Start by prioritizing transparency, investing in compliance technology, and fostering a culture of ethical hiring.
Plexus Global: Hire Safely With Knowledge
Plexus Global is a California-based background screening company serving organizations all over the U.S. and abroad.
Contact us today by telephone (844-516-1008), email (sales@plexusglobalinc.com), or through our social media accounts on Facebook, Twitter, and LinkedIn.
