What if I told you that it would not cost a dime to avoid a $5.9 million lawsuit? Do I have your attention? Very few things in life are absolute, but I am guessing that First Transit and First Student, subsidiaries of First Group America, would have paid me a million dollars for this blog back in 2006. Why? Because it would have saved them $4.9 million. A FCRA willful non-compliance class action lawsuit cost them $5.9 million. We both lost.
Complying with the Fair Credit Reporting Act is serious stuff. There are two big stumbling blocks to FCRA background checks compliance:
- Background screening firm is not a partner. Many background screening companies bury FCRA compliance requirements in their service agreement. This relieves them of any culpability. You are telling them that you will comply with the FCRA. Even though you probably have no idea what this federal law requires and who it applies to. You need a screening partner. Somebody that has your back.
- Believing the FCRA does not apply to you. I agree that the federal law is deceiving in title. Many organizations believe this law does not apply to them because they are not ordering credit reports. Come on, the law is specifically titled Fair Credit Reporting Act. Great point. I could not agree more. However, confusion is not a defense for non-compliance. The FCRA applies to more than credit reports, it applies to all forms of employment background checks WHEN you are using a third party (screening firm).
So what did the courts decide in Hunter, et al. v. First Transit, Inc., and Joshaway, et al. v. First Student, Inc.? It can really come down to two big mistakes:
- The employer disqualified employment candidates based on a background screening report (consumer report under FCRA) without obtaining the proper disclosure & authorization form from the candidate; and
- After taking adverse action, the employer failed to give the candidate a reasonable period of time to review the information (consumer report) that was being used against them.
What can we learn from this case?
- The FCRA requires that every single applicant obtain a disclosure statement and sign an authorization form (written or electronic). And the disclosure & authorization statement must be a stand-alone document that is separate from your application.
- The FCRA requires a two step process for taking adverse action based on a background screening report. The first step is providing the candidate with a Pre-Adverse Action Letter, copy of the screening report, and summary of their rights under the FCRA. Then you must wait a reasonable amount of time before taking Adverse Action. An FTC Staff Opinion Letter has found 5 business days as reasonable amount of time.
The case illustrates that it is critically important to partner with a quality background screening firm that will provide assistance with legal compliance. Complying with FCRA background checks should not cost you a dime. We provide sample forms, integrated FCRA Pre-Adverse and Adverse Action Letters, an intro to the FCRA webinar for all new clients and continuing education through our blog and webinars.
Are you ready for a crash course in the FCRA? Do you want a background screening partner who will assist you will legal compliance? Contact us today.