Laws Governing Background Check Information

It has become increasingly common in recent years for employers to request background checks on job applicants. Due to the commonality of such checks, it is important to understand the laws that govern background check information and the organizations involved.

Before an employer or future employer can gain access to your credit report they must first receive your written consent granting them access. Unlike employers though, landlords, insurance companies, government agencies, child support agencies, and other people with a 'legitimate business need' can gain access to your credit report without your consent.

Consumer Reporting Agencies (CRA's) are organizations that collect and sell information about the creditworthiness of individuals. They accomplish this by compiling information that they consider to be relevant to a person's credit habits and history. They then use this information to assign a credit score to that person, which indicates how creditworthy that person is. These organizations must follow the guidelines laid out by the Fair Credit Report Act or FCRA.

The FCRA is a Federal law that regulates the collection and use of consumer credit information. It was originally passed in 1970 and is enforced by the US Federal Trade Commission. According to the FCRA, a user of a background check, like an employer, must notify the applicant if adverse action is taken, like not being hired, due to the information found on the credit report. Also, the user of the credit report must be able to identify the company that provided the report, and tell you the address and phone number of the agency that supplied the information. The reason for this is to allow the applicant the opportunity to verify the accuracy of the report and contest it if is found to be false.

Due to the great importance that a credit report can have on job prospects and other important issues, it is vital to ensure that the credit report employers have access to is in fact accurate. Also, because identity theft is becoming more common each year, it is a good idea to check one's credit report to ensure that your identity remains yours. Instead of waiting to check your credit report until after being denied a job or loan application or receiving a bill for purchases you have not made, it is much safer to periodically check it. The Fair and Accurate Credit Transactions Act (FACTA), an amendment to the FCRA, passed in 2003, states that consumers are allowed to receive one free disclosure of their credit report per twelve month period. In order to obtain your file disclosure you will be required to provide proper identification, which will most likely include your social security number.

Many companies do not compile information for the expressed purpose of creating a credit report, but are still required to abide by the FCRA. The reason for this is that Federal Trade Commission has oversight over any company that compiles consumer reports, which they define as the processing and sale of any information that bears on a "consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living" (section 603(d)1) that is expected to be used for the purpose of obtaining credit, insurance, or employment. This means that companies who obtain their information via public records or do not consider themselves to be consumer reporting agencies can still be regulated by the FCRA. Any company that willfully fails to comply with a requirement imposed by the FCRA with respect to the consumer is then liable to the consumer for up to $1,000.