Beyond Credit Scores: The FCRA's Reach in Background Investigations

Jennifer Boaz
Jun 11
4 min read

You may be familiar with the Fair Credit Reporting Act, but do you understand its relevance to the world of background investigations? Let me explain!

The cornerstone of the Fair Credit Reporting Act (FCRA) is consumer protection. This law exists to ensure accuracy, fairness, and privacy in the collection of consumer information and to regulate how that information is used and shared. Since its inception in 1970, the FCRA has expanded to include regulations directed at employers and their use of background investigation results on prospective or current employees.

q and a graphic asking, what does the fcra govern, answer the consumer reporting agencies

Consumer Reporting Agencies include "any person which ... regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties ..."

Traditional credit bureaus are included in this definition, as are background investigation companies that compile information beyond just credit history, such as criminal records, employment history, and educational verifications.

Consumer Reports and Employment

The FCRA's relevance to background investigations stems from its definition of a "consumer report," as follows:

"(1) In general.-The term 'consumer report' means 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 purpose of serving as a factor in establishing the consumer's eligibility for

(A) credit or insurance to be used primarily for personal, family, or household purposes;

(B) employment purposes; or

Note: Exclusions do apply! The term "consumer report" (which is what the FCRA usually covers) does not include information that is just about your direct dealings with a company, shared within the same company family, your choice to opt-out, credit card approvals, loan decisions, and certain other specific communications.

What Does This Mean?

When an employer obtains information about a job applicant or employee from a Consumer Reporting Agency that includes criminal records, employment history, or educational details, this information is considered a consumer report and is therefore subject to the FCRA's regulations. The term "employment purposes," in reference to a consumer report, is defined in the FCRA as "a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee."

In other words, the FCRA is broad in what it considers a "consumer report." It's not just about your credit score. If an employer gets information about your character, reputation, or even just your past work history from a Consumer Reporting Agency, and they use that information to decide if you're right for a job, a promotion, or even to keep your current one, then that is considered a "consumer report" for "employment purposes."

This is important because it activates fair play rules – like telling you they're getting a report, getting your permission, and giving you a heads-up if something goes wrong. It ensures that even when companies are checking your background for a job, there is a clear process to protect your rights and ensure fairness.

Silver padlock on a dark, textured surface. The spotlight highlights its metallic sheen, creating a secure and sleek appearance.

Fair Play Rules - What Does This Mean for Employers?

It means that employers who use consumer reports for employment purposes must:

Disclose and Obtain Permission

Employers must advise the person under consideration for a job (or already employed) that a consumer report may be obtained. This has to be done in writing, and must be on a separate document, not hidden among other materials. Written permission is also required. Employers must be upfront and obtain consent.

Provide Advance Notice Before Saying No

Before making the final decision to not hire or promote someone, an employer must let them know by providing a copy of the report and a clear summary of their rights under the FCRA. This gives people a chance to look at the report, provide explanation, or even correct any mistakes that might be on it before an employer makes the final call.

Notify and Justify

Employers must notify candidates if they decide not to hire or promote because of something on the background report. The notice must include:

Name, address, and phone number of the company that provided the report.
A clear statement that the adverse decision was made by the employer, not the reporting agency.
A reminder that they have the right to obtain a free copy of the report from the reporting agency and challenge anything inaccurate or incomplete on that report.

Win-Win-Win

I've been in the background investigations world for a long time, and I see the FCRA's inclusion of background investigation issues as a win-win-win. Specifically:

For Subjects of the Investigation:

It's about fairness and privacy; they get to know what information is being used, correct any mistakes, and have a say in the process.

For Employers Who Requested the Investigation

It provides a clear framework that helps ensure they're making informed hiring decisions based on accurate information, all while staying compliant with the law and avoiding legal headaches.

For Background Investigators

It establishes clear standards for how they collect and report information, fostering trust in their services and promoting ethical practices across the industry.

These regulations create a more transparent and equitable system for everyone involved in the hiring process.

Source: FCRA 15 U.S.C. §§ 1681

Until next time,