The Fair Credit Reporting Act Part 2: How to Protect Yourself When Making Adverse Decisions

You have your permissible purpose, disclosures, authorizations, and compliant procedures for running background and credit checks. What do you do if you need to reject someone based on the results you receive from the reporting agency?

What is an Adverse Decision?

Essentially, it’s a rejection. If you turn down an applicant for employment, promotion, raise, or retention based on the information in their background report, you must now follow a strict, two-part process to maintain compliance with the FCRA.

Violations of this process are another highly litigated aspect of the FCRA. The class is smaller, but the applicants can prove damages more easily.

Adverse Action Best Practices

If you use ANY information in a background report (not just criminal record information) to make an adverse decision you must follow adverse action procedures. Many adverse actions based on background checks involve criminal records. The Equal Employment Opportunity Commission (EEOC) lays out the following best practices in their 2012 Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions.

Bright-line policies

The EEOC recommends eliminating “bright-line policies.” These are blanket policies that automatically exclude any applicant with a criminal record, regardless of individual circumstances and details.

Individualized Assessment

An individualized assessment should be conducted for every applicant with a criminal history or other cause for adverse action on a background check. The assessments should consider the “green” factors.

• Nature and gravity of the offense
• Time that has passed since the offense
• Nature of the position held or sought

Other relevant information the applicant my supply include:

• Circumstances surrounding the offense
• Number of offenses
• Age at time of conviction
• Similar work performed since conviction
• Rehabilitation efforts
• Employment and character references

Your Policies

The EEOC recommends a written procedure for reviewing applicants with criminal histories.

• Identify job requirements and circumstances
• Determine the specific offenses that may demonstrate unfitness for performing those requirements under those circumstances
• Use all available evidence to identify the criminal offenses
• Determine the duration of exclusions for criminal conduct
• Perform an individualized assessment in each case

The Two-Part Process

Pre-Adverse Letter

When you receive a background report that might lead to an adverse action, you must first notify the applicant in writing that you are considering adverse action based on the report.

The letter should include:

• A copy of the background report
• A copy of the summary of rights under the FCRA
• State notices, if applicable
• Any additional details and forms as required by your state and local authorities

This notice gives the applicant time to review their report and dispute details or provide additional information that may support the approval of their application. The FCRA doesn’t offer a specific time frame, but you’re required to give them time to respond. Five days is generally thought of as reasonable. Consult an attorney to confirm what’s best for your organization.

If the consumer disputes any part of the report, the reporting agency is required to re-investigate the disputed information. Re-investigations typically take three to five days and must be completed within 30 days.

During that time, you’re urged to make every attempt to hold the position open.

Notice of Adverse Action

If you decide to continue with the adverse action after a dispute, or if there is no dispute, you must again send notification in writing.

The letter should include:

• Your official decision
• The reporting agency’s name, address, and phone number
• Clarification that the decision was not made by the reporting agency
• Notice that the applicant has a right to obtain a free copy of their report
• State and locally mandated notices

Your Policies

Maintaining compliance with the FCRA and local legislation requires that every internal person involved in the consumer reports process knows and follows a specific procedure. Personnel training and a detailed written policy will help get everyone on board and can even help you defend your organization against accusations of misconduct.

Your policy should clearly define how your decisions – particularly adverse decisions – are made and how you document them.

Your policy should also clearly define who has the authority to make adverse decisions. People with this authority should be thoroughly trained. Some organizations even have committees in charge of reviewing and confirming potential adverse decisions.

Praesidium provides sample adverse action letters and state notices to our background screening clients. Remember, you are solely responsible for following a proper adverse action procedure. Consult a legal professional before taking any action.

If you would like to learn more about Praesidium’s Background Screening services, contact us today at info@praesidiuminc.com