Whether you’re a business owner or HR manager recruiting new employment candidates or a landlord sorting through several tenant applications, the scope of your background screening process as well as the procedures of your partner employment screening company are generally limited by the Fair Credit Reporting Act (FCRA).
A Federal Law
The FCRA is a federal regulation established in 1970 that protects consumers from the potential misuse, misinformation and unauthorized distribution of their credit information.
In essence, the FCRA law governs the use and disclosure of credit and financial history of consumers. It regulates the procedures of credit reporting agencies (also known as credit bureaus) and related specialized companies in terms of:
- How they can obtain the consumer’s credit and financial information;
- How long the information is kept; and
- How the information is shared to others.
As a federal law, the entirety of the FCRA is written under the U.S. Code Title 15, Section 1681. This law is enforced by the federal agencies Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC). Many states also implement their own legislations when it comes to credit reporting.
Credit Reporting Bureaus
Credit reporting bureaus can collect and sell a person’s credit information and history under the limitations of the FCRA. Mostly, it’s the businesses in the financial industry like the banks, lenders and insurance companies that partner with and contact these credit bureaus to receive financial reports on the person-in-question. The credit report can be a basis to deny a loan application or to calculate the interest rate a person should pay each month when a loan is approved.
The pre-employment background check companies that you hire for employment candidate or tenant applicant screening purposes are also most likely to contact the credit bureaus for finance-related information.
In the US, there are only three credit bureaus with major national significance.
- Equifax
- Experian
- TransUnion
Of course, there are many other credit bureaus in the country, but these three agencies dominate the consumer credit information market.
Credit Info Allowed Under FCRA
The FCRA indicates the consumer’s data that the credit bureaus can collect and share. These include:
- Current payables
- Loan history
- Bill payment history
- Employment history
- Current and former addresses
- Bankruptcy filing history, if any
- Child support status, if applicable
- Arrest records, if any
Sharing and Disclosure of Information under FCRA
The FCRA regulates who can see a person’s credit report and for what reason. In fact, the Act mandates that when someone requests for a credit report, the reason for doing so must be specified.
Reasons that are considered impermissible violate the FCRA. Examples of permissible uses include:
- For employment purposes especially for finance-related positions or for companies in the finance industry;
- As part of a credit check by a landlord or rental property manager;
- For the application of credit e.g. car loan or mortgage; and
- For the application of insurance policy.
The government can also seek credit reports such as the following:
- For the application of government-issued licenses;
- As part of a court order; and
- In response to a federal grand jury subpoena.
In some cases, the request for pulling credit reports must not be processed without the written consent from the person-in-question (such as in the case of employment application) or when the person has not initiated a relevant transaction (e.g. applying for a car loan or insurance policy).
Ensure that your company’s standard operating procedures on background screening comply with applicable laws by hiring an experienced and professional employment screening company.
How Long Can Information Be Kept
The FCRA mandates that credit bureaus should only keep the consumer’s negative credit and financial data for 7 years and must be removed from the report thereafter. Bankruptcy information should also be removed after 7 to 10 years, depending on the bankruptcy proceedings involved.
Penalties for FCRA Violations
Here are the penalties for violating the FCRA:
- Penalties ranging from $100 to $1,000;
- Attorney’s fees plus actual and punitive damages can be asserted if there are damages incurred;
- Potential criminal charges for pulling financial reports from a credit bureau under false pretenses.
Entrust your Background Checking Needs to Professionals
To ensure that the data and reports used and that the procedures performed for your background screening reviews are in compliance with FCRA and related laws, make sure to partner with dependable pre-employment background check companies.
SimpliVerified is a background screening company you can depend on when you want timely, comprehensive and accurate background check reports on employee candidates, potential tenants and even volunteers. Contact us today.
