If a background check cost a person a job, the Fair Credit Reporting Act generally requires the employer to get the person's written authorization before the report is obtained and to provide a copy of the report before taking adverse action based on it. It also lets a consumer dispute errors with the consumer reporting agency that made the report, and whether a particular situation violates the law depends on its facts.
A background check report can show a record the person has never seen, a case that was dismissed years ago, or a name that belongs to someone else. This page walks through the federal rules that apply across the United States, from the employer's duties to the background-check company's, and then what a consumer may do next.
What the FCRA Requires When an Employer Uses a Background Check
The Fair Credit Reporting Act (FCRA) is the federal law that governs background checks run through outside companies. Under 15 U.S.C. § 1681a(d), a consumer report is any communication by a consumer reporting agency about a person's "credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living" used or expected to be used or collected, in whole or in part, as a factor in establishing the consumer's eligibility for credit or insurance to be used primarily for personal, family or household purposes, for "employment purposes," or for another purpose 15 U.S.C. § 1681b authorizes, subject to the exclusions in § 1681a(d)(2). A consumer reporting agency, under 15 U.S.C. § 1681a(f), is any person that, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and that uses a means or facility of interstate commerce to prepare or furnish them; the CFPB says hundreds of background-check companies qualify.
Before ordering a report, 15 U.S.C. § 1681b(b)(2)(A) generally requires the employer to give "a clear and conspicuous disclosure... in writing... in a document that consists solely of the disclosure," and to get the person's written authorization. A different rule applies under 15 U.S.C. § 1681b(b)(2)(B)-(C) to applicants for certain transportation positions (those over which the Secretary of Transportation can set qualifications and maximum hours of service, or that are subject to safety regulation by a State transportation agency) whose only contact with the employer has been by mail, telephone, computer or similar means; for them, notice and consent may be oral, written or electronic. If the report is an investigative consumer report (one in which information on a consumer's character, general reputation, personal characteristics or mode of living is obtained through personal interviews with neighbors, friends or associates, among others), 15 U.S.C. § 1681d(a)(1) requires a written disclosure, mailed or otherwise delivered not later than three days after the report was first requested, that includes a statement informing the consumer of the right to request the additional disclosures provided for under 15 U.S.C. § 1681d(b) and of the written summary of the consumer's rights prepared under 15 U.S.C. § 1681g(c).
An adverse action in this setting is a decision against the person, such as not hiring, keeping or promoting them. Under 15 U.S.C. § 1681b(b)(3)(A), except as that section provides, a person intending to take adverse action based in whole or in part on a report used for employment purposes must first give the consumer a copy of the report and a written description of the consumer's rights under the FCRA. After the decision, 15 U.S.C. § 1681m(a) requires, among other items, notice of the action; disclosure of any numerical credit score used, with the related information; the name, address and telephone number of the agency; a statement that the agency did not make the decision and is unable to provide the specific reasons for it; and notice of the right to obtain a free copy of the report from the agency, including the 60-day period for asking, and to dispute its accuracy or completeness with the agency. Under 15 U.S.C. § 1681m(c), no person is held liable for a violation of that section who shows by a preponderance of the evidence that, at the time, it maintained reasonable procedures to assure compliance. State law may add protections, and it differs from state to state.
What a Background-Check Company Must — and Must Not — Do
Accuracy is the central duty. Under 15 U.S.C. § 1681e(b), whenever a consumer reporting agency prepares a report "it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates." Under 15 U.S.C. § 1681e(a), it must also maintain reasonable procedures designed to avoid violations of 15 U.S.C. § 1681c and to limit the furnishing of consumer reports to the purposes listed in 15 U.S.C. § 1681b. For employment reports, 15 U.S.C. § 1681b(b)(1) allows furnishing only if the person obtaining the report certifies that it has complied with the disclosure rules, will comply with the pre-adverse-action rules if they become applicable, and will not use the information in violation of any applicable Federal or State equal employment opportunity law, and the agency provides with the report, or has previously provided, a summary of the consumer's rights.
Public records get extra care. Under 15 U.S.C. § 1681k(a), an agency that furnishes a report for employment purposes and compiles and reports public-record items likely to have an adverse effect on a consumer's ability to obtain employment must either notify the consumer, when the information is reported to the user of the report, that public record information is being reported, together with the name and address of the person to whom it is being reported, or maintain "strict procedures" designed to insure that the information is "complete and up to date." Items of public record relating to arrests, indictments, convictions, suits, tax liens and outstanding judgments are considered up to date if the current public record status of the item at the time of the report is reported.
Time limits also apply. Under 15 U.S.C. § 1681c(a), an agency generally may not report, among other items, bankruptcy cases more than 10 years old; civil suits, civil judgments and arrest records more than seven years old from date of entry or until the governing statute of limitations expires, whichever is longer; paid tax liens more than seven years after payment; collection or charged-off accounts more than seven years old; or other adverse items more than seven years old, with records of criminal convictions excluded from that last limit. Under 15 U.S.C. § 1681c(b), paragraphs (1) through (5) of 15 U.S.C. § 1681c(a) do not apply to a consumer credit report used in connection with a credit transaction involving a principal amount of $150,000 or more, the underwriting of life insurance involving a face amount of $150,000 or more, or the employment of an individual at an annual salary that equals, or may reasonably be expected to equal, $75,000 or more.
Common errors include outdated records, sealed or expunged cases still showing, a dismissed charge listed as a conviction, and a mixed file, meaning a file that contains another person's information, for example someone with a similar name. A consumer may request their file and dispute errors, and the agency must then conduct a reinvestigation under 15 U.S.C. § 1681i(a).