What Is the Fair Credit Reporting Act (FCRA)?

Overview

The Fair Credit Reporting Act (FCRA), enacted in 1970 and significantly amended by the Fair and Accurate Credit Transactions Act (FACTA) in 2003, is the federal law that governs how consumer reporting agencies collect, use, and share personal information — including employment background check reports.

For employers, the FCRA creates specific legal requirements that must be followed every time a background check is used in a hiring, promotion, or termination decision.

Key Definitions

Consumer Reporting Agency (CRA): Any company that assembles or evaluates information about consumers to provide reports to third parties. Background screening companies are consumer reporting agencies.

Consumer Report: A communication of information by a CRA used in determining a person's eligibility for employment, credit, housing, or other purposes. An employment background check is a consumer report.

Employment Purposes: One of the "permissible purposes" for which an employer may obtain a consumer report under the FCRA.

Core Requirements for Employers

Disclosure and Authorization

Before ordering a background check, the employer must:

1. Provide the applicant with a clear, standalone disclosure that a consumer report may be obtained
2. Obtain the applicant's written authorization

The disclosure must be a separate document — not buried in an employment application.

Certification to the CRA

When ordering a report, the employer certifies that they have a permissible purpose, will comply with the FCRA, and will follow the adverse action procedures if required.

Pre-Adverse Action Process

Before making any adverse employment decision based on a background check, the employer must:

1. Provide the applicant with a copy of the report
2. Provide the FTC's summary of consumer rights
3. Allow a reasonable time for the applicant to dispute inaccuracies

Final Adverse Action Notice

After taking the adverse action, the employer must notify the applicant and provide information about their right to dispute the report.

Consumer Rights Under the FCRA

The FCRA gives consumers several important rights:

• The right to know what is in their file
• The right to dispute inaccurate information
• The right to a free copy of their report within 60 days of an adverse action
• The right to have inaccurate information corrected within 30 days

FCRA Enforcement and Penalties

The FCRA is enforced by the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB). Consumers can also sue employers directly for violations.

Damages for willful FCRA violations can include:

• Actual damages or statutory damages of $100–$1,000 per violation
• Punitive damages
• Attorney's fees and court costs

Class action lawsuits for FCRA violations have resulted in multi-million dollar settlements against employers who failed to follow required procedures — even when the underlying adverse decision was otherwise lawful.

State FCRA Equivalents

Most states have their own consumer protection laws that supplement the FCRA. California (ICRAA), New York, and other states impose requirements that are stricter than the federal law.

At Do It Right Screening, our entire process is built around FCRA compliance. Contact us to ensure your screening program meets every requirement.