FCRA COMPLIANCE: Why Employers Should be Compliant (+ Quick Tips)

FCRA Compliance, Compliant and Background Check

What is FCRA Compliance? Well for starters, the “Fair Credit Reporting Act” is the alternative for the abbreviation, “FCRA.” This federal act came into law in 1970 with the aim of assisting customers in resolving inaccuracies in their credit reports. The FCRA’s scope was modified in 1996 to include other customer studies, such as history reports prepared for job screening purposes. In other words, any employer who uses a third party to conduct background checks must be FCRA Compliant. Soon, we’ll find out why it is important to be FCRA Compliant.

FCRA Background

Basically, consumers are covered by FCRA enforcement. Employers that use background reports and the Consumer Reporting Agencies (CRAs) (also known as background screening companies) that provide the information are all regulated by the FCRA.

When an employer obtains a background check from a third party for job purposes, the FCRA applies. Also, criminal histories, work and education verifications, motor vehicle records, health care sanctions, and professional licenses may also be included in these reports. Furthermore, it’s worth noting that, although the word “credit” appears in the law’s name, it refers to all history records, whether or not they contain credit details.

Both the employer and the background screening firm are responsible for complying with the FCRA.

However, employers must inform employees that they will be conducting a background check and obtain written consent. If they make an employment decision based on negative details in the study, they must also follow strict adverse action procedures.

FCRA Compliance Overview

From the CRA’s perspective, compliance entails getting processes in place to ensure that records are as reliable as possible when adhering to both state and federal reporting requirements.

The FCRA also applies in other cases, such as tenant screening background checks.

To comprehend the FCRA, one must be familiar with some of its jargon. The following are some of the most relevant terms:

Consumer Report

A background report, also known as a “background check.” Only accurate information, such as dates of employment, criminal records, and driving records, is included in a Consumer Report.

Investigative Consumer Report

In contrast to a Consumer Survey, an Investigative Consumer Report contains details gathered through personal interviews. A personal interview, for example, is a discussion of job results. Another form of personal interview is a personal or technical reference search.


The individual who is the target of the background check is referred to as the consumer. This may be a job candidate, a current employee, a contractor, a temporary worker, or even an unpaid volunteer in the workplace.

Consumer Reporting Agency (CRA)

The organization that conducts the background check and prepares the background report


The person who requests and uses the history report is the user in question. This is usually an employer or a potential employer. An organization, such as a non-profit or a school district, may also be the recipient.


The document informs the buyer that he or she might be the target of a background check.


A document signed by the customer authorizing the preparation of a background check.

Adverse Action

The procedure to be followed when an employer is considering making a negative employment decision based on the background report in full or in part.

Why is it essential for employers to be compliant with the Fair Credit Reporting Act (FCRA)?

FCRA Compliance and Compliant
Image Credit: Pixabay (FCRA Compliant)

Failure to comply with the Fair Credit Reporting Act (FCRA) may be a costly risk. When receiving background reports from a third party, an employer is required by the FCRA to do certain things during the initial hiring process. Employers are regularly prosecuted in federal court for alleged violations of the Fair Credit Reporting Act. According to reports, around 409 FCRA lawsuits were filed, in June 2016 alone.

Employers pay a high price for litigation in terms of time, legal fees, financial settlements, brand harm, and time away from their core company. 

FCRA Compliance Graphic

FCRA Compliance Graphic from start to finish, a compliant background check procedure is a positive experience for the applicant or employee. It shows that the company is serious about its ethical obligations and values its employees. It also aids in the avoidance of an unintentional loss of a promising prospect or employee.

How to Conduct a Background Check in Compliance with the Fair Credit Reporting Act (FCRA)

Every employer that uses a background screening company to perform pre-employment checks must comply with the FCRA.

Ironically, some of the FCRA’s most basic provisions often become a basis for lawsuits. In other words, they become a tool for the wrong intentions. In that case, y]the following are the most important enforcement issues that employers should be aware of:


Before obtaining a background report from a CRA, the employer must notify the subject that one is an eligibility requirement. The disclosure’s content and format are extremely significant. Only disclosure language must be used in the disclosure, which must be published in a separate text. It should not, for example, be included in a job application or hidden in a packet of information.

Furthermore, the vocabulary of the disclosure should only include the disclosure; with no other material in view. The term “extraneous” can refer to anything from corporate benefits to on-the-job behavior to a drug-free workplace. So including a waiver of liability in the disclosure, language is particularly troublesome – and the foundation of much class action litigation.

However, before obtaining a background report from a CRA, the employer must obtain written consent from the subject. (Electronic signatures that follow E-SIGN guidelines are acceptable.)

The FCRA only needs unique content and format, not specific language. The disclosure and authorization language, whether in separate documents or together, must be plain and conspicuous. The reader should be aware that he or she will be the subject of a background report and that he or she is approving the report’s preparation.

Adverse Action

Employers must obey the multi-step FCRA adverse action procedure if they are considering a negative employment action – not recruiting, not promoting, or not retaining – based in whole or part on details in a background study.

Notify the applicant that he or she may be a victim of a negative decision

Then, hand over a copy of the study as well as a copy of the federal summary of rights. Inform them that they have the option to contest the study. Be sure to set aside a definite period of time to begin the dispute.

Please hold your horses

During the time allocated for the applicant to contact the CRA and challenge the study, you should not make any decisions.

If you make an adverse decision after the allotted time has expired, you must contact the applicant again. This time, you’ll clarify the course of action, provide contact information for the CRA who completed the report, a declaration that the CRA did not make the decision, and statements telling them that they can obtain a copy of the report and still contest its contents.
History screening compliance is difficult, and the FCRA is the “elephant in the room.” Employers cannot afford to turn a blind eye to it.

The good news is that the FCRA’s highest-risk components are the easiest to comply with. Employers need a well-designed screening program, regular auditing, and the assistance of a knowledgeable screening partner.

Who Needs to Comply With FCRA?

Both the employer and the background screening business are responsible for FCRA compliance. Employers must indicate that they will perform a background check and obtain written authorization.

How Do I Become FCRA Compliant?

Four Basic Steps to FCRA Compliance

  • Step 1: Make a disclosure and obtain written consent. An employer must do the following before requesting a consumer or investigative report:…
  • Step 2: Submit Certification to a Consumer Reporting Agency.
  • Step 3: Provide Pre-Adverse Action Documents to Applicant.
  • Step 4: Inform the applicant of the adverse action.

What Is the Main Purpose of FCRA?

The Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681 et seq., governs access to consumer credit report records while also promoting the accuracy, fairness, and privacy of personal information gathered by Credit Reporting Agencies (CRAs).

What Is the FCRA Process?

The Fair Credit Reporting Act (FCRA) is a federal legislation that governs the gathering of credit information from individuals and their access to their credit reports. It was enacted in 1970 to address the fairness, accuracy, and privacy of personal information contained in credit reporting organizations’ files.

What Are the Most Common FCRA Violations?

Withholding notices, privacy violations, seeking reports for improper purposes, failing to follow required debt disclosure processes, supplying and reporting erroneous information, providing and reporting old information, and combining files are the seven most common FCRA violations.

  1. FCRA: Fair Credit Reporting Act Beginner’s Guide
  2. Fiscal Agent: Best Practices & Detailed 2023 Guide
  3. Discretionary Fiscal Policy: 2023 Definitive Guide(+Detailed Examples)
  5. Home Mortgage Disclosure Act (HMDA) and Regulation C

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