Consulting with an attorney and partnering with a knowledgeable background screening firm can help mitigate FCRA risks.

How technical is the Fair Credit Reporting Act (FCRA)? So technical that attorneys have made millions suing consumer reporting agencies (CRAs) and their clients for what seems like the most minor of infractions.

Here’s what you need to know to avoid this particular pitfall.

You Lose, You Pay

The FCRA has led to many lawsuits with high payouts for one reason: The FCRA is a “fee shifting” statute, which means that victorious plaintiffs are allowed to recover attorney fees, as well as whatever the court awards.

This is a huge incentive for plaintiffs to sue.

There’s a second incentive as well. The more plaintiffs there are (i.e., class-action lawsuits), the higher the potential compensation. Not only can plaintiffs recover statutory damages, but punitive damage awards are also uncapped. (Some other statutes cap punitive damage awards; the FCRA does not.)

And a lawsuit doesn’t have to go to trial to be lucrative for the plaintiffs. Simply settling cases can yield a substantial payout.

Combine an extremely technical law with a motivated plaintiffs’ bar, and you get a very busy court system.

The Liability of Disclosure and Release Forms

One violation that has been a favorite for plaintiffs involves the required disclosure and release forms: the forms used whenever an organization has a background check done.

The FCRA indicates that, for employment purposes, end users (our clients) are required to make a “clear and conspicuous disclosure” to the consumer (applicant) “at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes.” Additionally, the consumer must authorize the procurement of the report by the end user.

Or, in plain English, you have to tell a prospective hire that you plan to obtain a background report on him/her, and the prospective hire must provide permission for you to do so.

Plaintiff attorneys have launched lawsuits that assert that defendants violated the FCRA by:

  • Not providing the disclosure and/or release forms
  • Including extraneous information in the disclosure form, such as limitation of liability language

Not surprisingly, a recent study has shown an increase in the number of complaints alleging violations of this section of the FCRA. As an example, a January 9, 2019, article on HRDrive.com indicated that Delta Airlines “agreed to pay $2.3 million to settle a class-action lawsuit alleging it failed to provide approximately 44,000 applicants with a stand-alone background check disclosure, in violation of the federal Fair Credit Reporting Act (FCRA) and California law.”

The article also noted that the “settlement is the latest in a string of employers paying big for alleged background check errors. Last spring, Frito-Lay paid $2.4 million to settle a very similar case…”

This issue is only one technicality that can lead to expensive litigation. The FCRA is full of other pitfalls. If not followed to the letter, the FCRA can cost a company in both money and reputation.

Mitigate Your FCRA Risks

Needless to say, consulting with an attorney and partnering with a knowledgeable background screening firm can help mitigate these risks. Make sure they’re very familiar with the FCRA and its employment-related regulations.

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As an executive search firm, having a vendor that is able to execute a background check search, quickly and efficiently is paramount. Integras has been an exceptional partner and understand and communicate the ever changing laws that relate to each state. I would highly recommend them for any companies or recruiting firms that needs a professional background check service. Have used them for years and will continue to do so!
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