Compliance with the Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) was originally passed in 1970 to amend and enlarge the sway of the Federal Deposit Insurance Act. The purpose of the act is to regulate the behavior of the consumer reporting agencies (CRAs) and background checks. If businesses use credit reports or background checks improperly or the CRAs provide information improperly, that is a violation of Federal law which can be contested in civil court. The act regulates the reporting agencies on behalf of those whose reputations are damaged by incomplete or inaccurate credit reporting or background checks. It also regulates false background check and reference checking.

The function of the CRAs is to act on behalf of lenders or employers to provide information on the credit history or background of people that reflects on their criminal record, financial reliability and other matters. When the reported  information is incorrect, outdated, or released improperly it can be very detrimental to anyone referenced by it.

Full FCRA Compliance means that credit bureaus and background checkers must exercise due diligence.

• The credit bureau or credit monitoring agency must provide to consumers any information that they have on file about them so the information can be checked against real experience.
• If negative information is removed from the credit report file because of a consumer’s dispute, it may not be re-inserted without notifying the consumer in writing within five days.
• CRAs may not retain negative information about a consumer for excessive periods of time. The legislation specifies how long negative information such as late payments, bankruptcies, tax liens or tax judgments may stay on the consumer’s credit report. That is typically a period of seven years.
• Creditors and lending agencies must provide complete and accurate information to the credit reporting agencies.
• Creditors have a duty to investigate disputed information and correct any errors or report on their findings within 30 days of notice of a dispute.
• Creditors must also inform consumers of any negative information which is being entered within one month.
• Employers or lending institutions making use of credit reports or background checks must notify anyone if an adverse action (like a non-hire or a loan refusal) is taken because of these reports.
• Users of the reports must identify the company that provided the credit report or background check so that accuracy and completeness of the information may be verified or contested by the consumer or applicant.

For willful noncompliance with FCRA regulations, a complainant may recover actual damages or a statutory minimum of $1,000 plus possible punitive damages as well as court costs and attorney fees.

Several large companies including Michaels, Whole Foods, Dollar General, and Panera Bread have recently been sued for oversights that led to non-compliance with the FCRA in their hiring practices.

In class-action lawsuits, these companies were accused of failing to properly clearly disclose and ask for authorization to obtain a credit report during the job application process. Companies who fail to inform candidates in advance that they were not hired because of information in a credit report are in violation of the FCRA as well. (The case against Michael’s was subsequently dismissed, but these cases cost the companies plenty anyway).

Since 1993, TruDiligence has been a leading provider of applicant screening for business. Please contact us to find out how our thorough services work.