What Does the Federal Legislature Have to Say About It?
As discussed in more detail in another article on this website, the Fair Credit Reporting Act (“FCRA”) sets standards for Credit Reporting Agencies (“CRAs”) across the nation. Naturally, the FCRA also promulgates regulations as it relates to credit reports and employment. Like most federal statutory schemes, these requirements represent the floor, not the ceiling.
The FCRA regulates the use of “consumer reports” in a myriad of circumstances. In addition to regulating “credit checks”, the Fair Credit Reporting Act also regulates “background checks” for the primary purpose of “hiring, promotion, retention, or reassignment.” The net result of this convoluted statutory scheme is to leave the layman scratching their head, and wondering just what the rules are.
At the outset it should be noted that the Fair Credit Reporting Act’s restrictions only apply to outside entities, which create, and prepare, background checks incident to employment decisions. When an outside entity prepares a background check for the purpose of employment, they are obligated to: (1) notify the employee that an investigation may occur, (2) provide the employee an opportunity to consent to that investigation, and (3) notify the employee if information provided as a result of the investigation results in an “adverse” employment decision.
Under the FCRA, using an outside entity to create a background check on potential employee triggers certain duties that the employer must comply with: (1) the employer must provide the employee with written notice that they might seek a background check on the potential employee, (2) obtain permission to obtain a background check from the potential employee, (3) obtain different, specific, permission to obtain medical information if needed, and (4) obtain yet more specific permission if they anticipate that your character will be reviewed through communication with friends, family or neighbors.
Pursuant to the Fair Credit Reporting Act, it is generally a violation to report “old” negative information; usually negative information, which is over seven (7) years old.
In the event that the background check results in an adverse action against the employee; the employee was not hired based on the background check, the employer must provide the employee with a “pre-adverse action notice.” If an adverse action is taken against the employee, the employer must also provide the employee with a copy of the background check, which the employer utilized to determine whether or not to take an adverse employment action against them. After an adverse employment decision has occurred, the employee should receive a second notification regarding the adverse employment decision, after that event has occurred.
It is worth mentioning, as it relates to the Fair Credit Reporting Act, an employer is not required to comply with the mandates set forth in the FCRA if they compile the report themselves.
In the next portion of this series, Part II, we will discuss the protections that California provides their citizens, and the specific requirements that California employers must follow to avoid running afoul of the law.
 Thus, states are free to provide greater protections than the FCRA to their citizens, but no state can provide less protection to their citizens than the FCRA. As discussed in another article, California is more protective of their citizens when it comes to employment related background checks.
 This is known as an “Investigative Consumer Report.”
 Bankruptcy information is the exception to this rule, and can be reported up to ten (10) years after it occurred. Also note that jobs and insurance policies involving certain dollar amounts may be reported over the seven (7) year cut-off, and criminal convictions are allowed to be reported indefinitely under the FCRA.
 California has its own statutory scheme which requires employers who compile a background check on their own to follow other, more protective, rules than the FCRA.