Legislative Update: FTC Employer Guidance on Disclosures

May 18, 2017

FTC Guidance on Background Checks

As an employer, have you ever found yourself scratching your head trying to figure out how to create a background screening disclosure? How should potential employees be informed of your intent to acquire a background check before a hire decision is made? If so, you are not alone. The legal landscape surrounding this subject is often confusing and misunderstood. Let’s try and simplify your understanding of the regulations surrounding background screenings, the associated disclosures, and what language is required therein. The following list of terms and key definitions will help keep us on the same page:

  1. Fair Credit Reporting Act (FCRA): the primary law surrounding the creation and use of background checks.
  2. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB): two main enforcement agencies related of FCRA regulations.
  3. End-user: the FCRA uses this term to define an employer
  4. Consumer Reporting Agency (CRA): any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purposes of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.1
  5. Consumer Report: any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purposes of serving as a factor in establishing the consumer’s eligibility for:
    1. credit or insurance to be used primarily for personal, family, or household purposes;
    2. employment purposes; or
    3. any other purpose authorized under section 1681b of this title.2

Now that we have defined a few key terms and acronyms, let’s turn our attention toward the specific requirements placed upon employers who conduct background checks on candidates and employees. These are the initial steps as stated within the FTC article, https://www.ftc.gov/news-events/blogs/business-blog/2017/04/background-checks-prospective-employees-keep-required:

  1. Before you get a background screening report about a prospective employee, disclose to the person that you intend to get the report and then get their written authorization allowing you to do that.
  2. If the background screening report reveals something that may cause you to decide not to hire the person, you must notify them of the results of the report and provide them with a copy. Next, you have to give them sufficient time to review the report so they can challenge any elements that might be incorrect.
  3. If you ultimately decide not to hire someone based in whole or in part on the contents of a background screening report, you must provide a notice to that person that states they weren’t hired due at least in part to the result of the background screening report.

If we now turn our attention directly to the creation and usage of employment screening disclosures, the FTC recent guidance was truly a statement of “less is better.” Here is the list of the items the FTC states an end-user should not include within its company’s background screening disclosure:

  1. Don’t include language that claims to release you from liability for conducting, obtaining, or using the background screening report.
  2. Don’t include a certification by the prospective employee that all information in his or her job application is accurate.
  3. Delete any wording that purports to require the prospective employee to acknowledge that your hiring decisions are based on legitimate non-discriminatory reasons.
  4. Get rid of overly broad authorizations that permit the release of information that the FCRA doesn’t allow to be included in a background screening report – for example, bankruptcies that are more than 10 years old.

The FCRA is specific in its intent to keep disclosures simple and to the point. The recent FTC guidance states, “Complying with the FCRA’s disclosure requirement for the use of background screening reports is easy. You can do it in a few sentences. Just include a simple, easy-to-understand notification that you will obtain a background screening report, perhaps with a simple explanation of what information will be included in the report. The request for the prospective employee’s authorization should be in plain language, too.3

 

For Validity clients who are using Validity’s electronic solutions, rest assured, you are covered. For those clients or prospective clients who would like more information on using Validity’s electronic solutions, please call Validity’s Client Care Team at 866-256-0624 to schedule a demonstration.  

 

The content of this email does not constitute legal advice, should not be relied upon as such, and should be used for informational purposes only. If you need legal advice on matters related to the content of this communication, please contact legal counsel.

 

1 15 U.S. Code § 1681a(f) https://www.law.cornell.edu/uscode/text/15/1681a

2 15 U.S. Code § 1681a(d) https://www.law.cornell.edu/uscode/text/15/1681a

3 https://www.ftc.gov/news-events/blogs/business-blog/2017/04/background-checks-prospective-employees-keep-required

Topics: Audits, Background Checks



Scott Burroughs

Written by Scott Burroughs

Scott maintains Validity's knowledge base of all federal, state and regulatory compliance requirements. He is also responsible for the important legislative and regulatory updates that you receive from Validity Screening Solutions. Certification: FCRA Advanced Certification