New Disclosure Requirement for Employment Background Checks
September 27, 2018
The Fair Credit Reporting Act (“FCRA”) imposes specific requirements on employers and consumer reporting agencies (“CRAs”) when conducting background checks on employees and job applicants. Employers must adhere to a rigorous set of notice, disclosure, and consent requirements when obtaining background checks from CRAs and when taking any adverse action against employees or job applicants due to information obtained through these consumer reports.
Specifically, the FCRA requires employers to provide a detailed disclosure form, entitled “Summary of Rights Under the Federal Credit Reporting Act,” to employees and job applicants before conducting an investigative background check or taking any adverse action based on information obtained through a consumer report. The purpose of the form is not only to explain major consumer rights under the FCRA, but also to give affected individuals the opportunity to explain and dispute any incorrect information that may be contained in the consumer report.
On September 12, 2018, the Consumer Financial Protection Bureau issued a new version of this disclosure form. The revision reflects new legislation passed earlier this year that amended the FCRA to: (1) grant consumers the right to place a “security freeze” on their credit report, which will prohibit CRAs from releasing information in the report without express authorization from the consumer; and (2) extend the minimum time period that CRAs must include an initial fraud alert in a consumer’s file to one year. Employers are required to use the updated disclosure form starting September 21, 2018.
Employers should update their files to reflect the new “Summary of Rights Under the Federal Credit Reporting Act” and should verify that the CRAs used to conduct credit or background checks are using the correct version of this disclosure. Failure to use the updated form exposes employers to significant legal risk, including government penalties and private lawsuits. The new form can be found here: https://www.consumerfinance.gov/about-us/newsroom/bureau-consumer-financial-protection-issues-updated-fcra-model-disclosures/.
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