One way you can verify a potential candidate’s identity is with a background check. A background check reveals crucial information about the potential employee, including the candidate’s credit report.
A credit report will comprehensively depict a potential candidate’s credit history. Credit reports are useful indicators of financial standing, containing information on loans, debts, and mortgages.
Most of the time, credit reports requested by an HR department will reveal accurate information. However, there are times when the financial information on the report will be wrong. The inaccurate information can be damaging to a candidate or employee.
Luckily, the Fair Credit Reporting Act (FCRA) protects consumers from inaccurate information in their credit reports. By governing the information use and assembly of consumer reporting agencies (CRA), the FCRA promotes the accurate recording of credit information. As a result, consumers retain the right to dispute inaccurate information on credit reports.
However, what exactly is the FCRA? What rights do you have under this law? We answer these questions and more below. Learn everything you need to know about the Fair Credit Reporting Act.
What is the FCRA law?
The Fair Credit Reporting Act (FCRA) was the first law passed to govern how credit reporting agencies and credit furnishers use and publish credit report information. The act was passed in 1970 by congress in response to the growing credit report industry.
In its first iteration, the Fair Credit Reporting Act (FCRA) contained stipulations geared toward promoting the private and accurate release of credit information. Between 1996 and 2018, the Fair Credit Reporting Act (FCRA) included protection rights for specific populations, namely veterans and students with student loans.
FCRA law helps ensure that credit reporting remains transparent, accurate, and private only to parties that require credit information, like employment screening companies. For this reason, the law outlines several rights for consumers. More specifically, the Fair Credit Reporting Act contains consumers’ rights to credit information and for disputing inaccurate credit reports issued by furnishers or credit bureaus.
Besides consumer rights, also contained within the Fair Credit Reporting Act are the types of information credit bureaus can gather on a consumer. According to the Federal Trade Commission, a credit bureau or consumer reporting agency can collect only the following to assemble a consumer report:
- Bill payment history
- Loans
- Outstanding credit card balances
- Any debt
- Addresses (present and former address)
- A history of bankruptcy
- Health data
- Personal characteristics and lifestyle
The Fair Credit Reporting Act also stipulates who can access consumer reports and when credit bureaus or creditors can do this. Under the Fair Credit Reporting Act, employers can get a free credit report about a candidate for employment purposes.
What Are My Rights Under the FCRA?
The Fair Credit Reporting Act is a law that protects consumers. As a result, most of its provisions favor consumers whose information may be susceptible to exploitation or identity theft. Under the Fair Credit Reporting Act, consumers have the following rights:
The Right to One’s Credit Information
The law gives consumers the right to free access to their credit information. Access to information can occur in one of two ways. A consumer can either request it from a credit report bureau or do so after disputing an inaccurate report.
The Right to Know How Sensitive Information in a Credit Report is Being Used
In particular, consumers have the right to know whether lenders or creditors use any financial information to deny a loan application. Under FCRA law, consumers are also entitled to know whether or not any data in their credit reports is being invoked to deny employment or insurance.
The Right to Information Privacy Except in Situations Where the Information is Necessary
FCRA law makes credit reporting safer for consumers. The law achieves this by making credit reports confidential and guarding consumer information against theft or unlawful access by third parties.
Of course, there are exceptions. Under the Fair Credit Reporting Act, a credit reporting agency may release information in certain situations. The context wherein the publication of consumer credit information is lawful varies. These situations involve parties needing the information for a “legally permissible purpose” like credit, insurance, or employment.
The Right to Refuse Pre-Approved Procedures That Require a Credit Report
Sometimes, insurance companies or credit card companies will pre-approve consumers for their creditworthiness. Often, these pre-approval procedures require companies to look into credit reports. In such a situation, a consumer has the right to opt-out of such screening procedures under the Fair Credit Reporting Act.
Under the FCRA law, consumer credit data is private until consumers give written consent to a party to access credit reports. As a result, during pre-approval credit screening procedures, an individual can submit to the screening process or lawfully refuse it.
The Right to “Freeze” Credit Reports
Credit reports are a valuable source of information for insurance companies, employers, and credit agencies. However, sometimes, the information contained within the reports can compromise consumers.
Under federal law, consumers who do not want third parties to access their credit reports can place their records in a “security freeze.” A security freeze prevents third parties from accessing information in a consumer report. The only time the freeze can be lifted is when a consumer consents to access. Individuals can grant access to their consumer reports by giving consent and one-time pins that enable credit report access.
The Right to Dispute Incorrect Credit Scores
One of the primary obligations of the Fair Credit Reporting Act is the accurate reporting and collection of credit data. For this reason, consumers can dispute any inaccuracies in credit reporting. If the negative information prevents a consumer from acquiring credit or employment, a consumer can file a lawsuit against credit furnishers or credit reporting agencies. Consumers can file a lawsuit to recover damages resulting from disseminating harmful and inaccurate credit data.
Under the FCRA, a consumer can file a lawsuit within the statute of limitations set by the Federal Trade Commission. The statute of limitations is two years from the date of the inaccuracy’s discovery. The statute of limitations can increase to five years, depending on the circumstances.
What is a Violation of the FCRA?
Violations of the FCRA can take different forms. Some of the most common include inaccurate credit reporting, failure to handle disputes, negligence in consumer reporting, and using data for impermissible purposes.
A credit reporting agency can inaccurately report information in several ways. For example, a credit reporting agency might report an individual paying child support when that individual has no children. Also, a furnisher may be incorrect in reporting the time and date of a credit card transaction to credit inspection bureaus.
In such scenarios, the parties liable would be the furnisher and the CRAs. This is because credit reporting agencies and furnishers must ensure maximum accuracy in reporting credit information under 1681 e(b) of the FCRA law.
Another violation of the FCRA happens when CRAs fail to investigate disputes. When a consumer files a dispute for inaccurate data, a CRA must investigate the credit history to determine where an error exists. Besides conducting an investigation, a CRA must notify a consumer of the investigation’s findings. If a CRA does not do both, the CRA will directly violate 1681 of the FCRA.
Negligence is another way to violate the FCRA. CRAs or credit collection agencies can violate the FCRA if they are negligent in consumer reporting. CRAs must notify consumers of anything involving credit information collection, use, and publication. CRAs must also inform individuals of parties obtaining credit reports.
Lastly, another common violation of the FCRA is using consumer credit information for legally impermissible purposes. As mentioned earlier, data privacy is one of the provisions of the FCRA. A CRA can only release or publish credit information when a consumer gives consent or if the situation makes data publication “legally permissible.”
One example of a legally permissible purpose is when an employer performs background checks on a potential candidate. Another example of a permissible situation is when an insurance company asks for a credit report.
Contact Quentelle LLC for More Information
As a business looking to perform background checks on employees, the FCRA law is a federal law you need to be familiar with. By knowing the ins and outs of this consumer protection law, you can prevent liabilities arising from FCRA violations.
It’s a complex law that is easy to misunderstand. If you need more information about FCRA law and how it can affect your hiring processes, do not hesitate to reach out.
Get in touch with us at Quentelle if you have questions about the FCRA law and other laws that can affect your business. If you need an all-in-one HR platform that takes the guesswork out of your staffing processes, schedule your free demo.