5 Steps To Ensure Compliance With The FCRA by Crimcheck - HTML preview

FCRA Compliance: Step 3

Pre Adverse Action Notice

Sometimes, information unearthed during a background check can form the basis of taking what in FCRA lingo is referred to as an “adverse employment action”. An adverse action is basically a decision which has negative implications for the employee/applicant. Examples include not hiring an applicant, firing an employee, demoting an employee or removing certain privileges.

If the background check was carried out by a CRA, then the FCRA has certain requirements which must be met before the adverse action can be carried out.

Among these requirements are the following:

• The employer must send a notice to the employee or applicant indicating their intention to carry out the adverse action. This notice is legally referred to as a “Pre Adverse Action Notice”.
• The notice must include a copy of the Credit Report (background check report) on which the adverse action will be based.
• The notice must also include a copy of a document entitled “A Summary of Your Rights Under the Fair Credit Reporting Act.” This document can be obtained from the CRA which carried out the background check.
• The notice must include up-to-date contact information of the CRA (the company which carried out the background check).

Upon sending the Pre Adverse Action Notice, it is suggested that businesses give the employee or applicant up to a week to initiate a dispute. In case an applicant or employee doesn’t dispute the information in the Report, the next step is to initiate the Notice of Adverse Action.

There are two important things which have to be observed when handling Pre Adverse Action Notices. The first is to ensure that you are using the latest and most up-to-date FCRA and CFPB forms. Failure to do so can lead to FCRA violations – with dire consequences.

A case in point is a recent class action lawsuit in which Kmart had to pay a $3  million settlement. The class action was brought about because Kmart failed to notify job applicants that they were rejected for failing a background check. The lawsuit was initially brought in 2011 after Kmart offered an applicant a job, but then withdrew it after carrying out a background check.

According to the suit, Kmart offered the applicant a copy of the background report together with an outdated statement of FCRA rights. The statement the applicant received was released in 1997 by the Federal Trade Commission (FTC). It contained inaccurate FTC and Federal Reserve contact information. It also didn’t contain important revisions including the right for an applicant to dispute inaccurate or incomplete information.

Basically, sending a Pre Adverse Action Notice isn’t enough. You have to ensure that all the information and forms sent along are accurate and up-to-date. Otherwise, you may end up in a situation like Kmart – having to pay a huge settlement even after trying your best to comply with FCRA guidelines.

The second important thing to note about a Pre Adverse Action Notice is giving an employee or applicant an opportunity to dispute.

The reason for this is that background checks aren’t impeccable. Sometimes, they raise red flags which can easily be explained away. Therefore, it is required to allow employees or applicants an opportunity to explain themselves or dispute information in the report. This is highly advisable especially if they score highly in the attributes which you are looking for.

In a nutshell, before you take an adverse action as a result of information collected in a background check, FCRA regulations require you to send the applicant or employee a Pre Adverse Action Notice. Under normal circumstances, most CRAs can prepare and even send the notices on your behalf. Even then, you need you need to follow-up with them. Specifically, you need to ensure that any supporting documents they send are up-to-date and accurate.