What is the FCRA: How Are Online Background Checks Governed?

April 10, 2019
What is the FCRA
article by Lindsey Kennedy author

At some point in your life, you will almost certainly have been subjected to a background check. Perhaps you were starting a new job and your employer wanted to be sure you had no skeletons in your closet. Maybe you applied for credit or for a mortgage and the bank, or company you’re applying to wanted to see how responsible you’ve been with money in the past. Landlords often use background checks to screen tenants. Journalists need to fact-check articles. Any position, paid or voluntary, that involves being around kids will involve a background check.

Increasingly, too, individuals are keen to find out as much as possible about a person before they decide to trust them – and that’s led to a proliferation of online background search platforms that promise to flag up any dodgy details in your new friend’s, date or roommate’s past.

Here’s where things get murky. People also have a right to privacy and there are strict rules about what kind of information you can sleuth around for, through which medium and for what purpose. These rules are governed by the FCRA.

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What is the FCRA?

The FCRA stands for The Fair Credit Reporting Act. As the name suggests, it’s a piece of federal legislation in the US that aims to ensure that private background checks, consumer reports and any other types of credit checks are conducted in a fair and accurate way.

The FCRA is responsible for overseeing how consumer credit information is collected and accessed. However, it goes much further than that, extending to any other kind of background check conducted by a third party, whether or not that includes looking through their credit history.

When we say third parties, we’re talking about agencies called Consumer Reporting Agencies (CRAs). If you’re based in California, bear in mind that the sunshine state has extra background check laws that you need to follow too.

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What Are the Policies and Rules of the FCRA?

The FRCA tries to keep things fair by setting rules and regulations that apply to different types of background checks, as well as the different people involved in them. That means the person or organization that wants to run a search, the agencies that collect and supply the data, the site or platform that actually conducts the search, and of course the person whose background is being investigated.

To start with, let’s review the kinds of background check the FCRA deals with.

What Kinds of Background Checks Are There?

As explained above, there are many reasons that a company, person, school or any other organization might want to run a background check on an individual’s records.

Depending on your relationship with the person having their records searched, you might need to look at their driving records, criminal history, information provided from previous employees, academic transcripts that are supplied or verified by any educational institutions they claim to have attended, and/or data compiled by credit reporting agencies. Drug tests also count as a form of background check.

When Can You Run a Background Search on Someone?

The point of a background check is to figure out whether you can trust a person in a particular context. This means that you can only run checks that could reasonably give you the information you need for that purpose. Unless data is out there in the public domain, you can’t just dive in and find out absolutely anything about anyone you like, just because you feel like it.

Take employers, for example. Many employers quite reasonably want to know whether you’ve committed certain types of crimes, whether you’ve racked up any driving misdemeanors, and whether you were cautioned or fired from previous jobs. These give them an idea of whether they can trust you to be responsible and ethical if they take the risk and hire you.

However, they’ll typically run these background checks on you fairly late on in the process, when they really are considering hiring you. They don’t subject everyone who applies to these rigorous checks. That would be an unnecessary breach of privacy.

The important thing is to be clear and honest with an agency or an online service about who you are, what your relationship to the person is, and why you want to run the check. If they are above board, they will then limit their search to particular pools of information that you can legally access in this situation, in accordance with FCRA rules.

What Can You Find Out With an Online Background Check?

First of all, from a legal standpoint, online background check companies can search anything that’s stored on public records for you. Bear in mind that the accuracy and completeness of their reports are will vary depending on how good they are at this task.

Details kept on public registers in the US typically include birth, death, marriage, divorce, criminal and bankruptcy records. All states are required to make records of convicted sex offenders public, too.

Individual states may allow a lot more than this to go on the public record, though. Depending on where you live, people may be able to search your tax information, real estate deeds and transactions, unemployment claims, political campaign contributions and various types of licenses, certifications and census records. Sometimes, even your phone number is held on the public record.

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For information that isn’t held in the public domain, like a person’s credit score or work history, you need a valid reason to request access. Typically, you also need the person being searched to agree to the background check.

Let’s take a look at these rules in more detail.

Rules for People and Organizations Running a Background Check

As a rule of thumb, you need to be upfront about why you’re running a background check. You can only access certain types of information if you have a legitimate business reason or you’re considering employing someone. If you try to access this information fraudulently, you could be in big trouble. If you want to access this legally, you need to follow the rules below.

Employer Background Checks

Employers and potential employers can apply for a consumer report when considering whether to hire you – but only if they notify you and get your consent in writing. If they decide not to hire you because of something they discover in the report, they have to give you a copy of the report, a pre-adverse action disclosure, details of your rights, notice that they have decided not to hire you and the name and address of the relevant Consumer Reporting Agency so you can dispute it if you choose to do so.

Private Companies and Landlords

If you consented to a credit background check and then got turned down for a contract or credit, the company in question has to tell you that you’ve been turned down because of information in your credit report. They also need to give you the name and address of the credit bureau that supplied this information in case you want to dispute any of it.

Furnishers of Information

Any business or organization that provides information to a credit bureau or agency has legal obligations set by the FCRA. That includes state and municipal courts reporting a judgment on the person, bonders, creditors, and past and present employers.

To start with, they can’t knowingly report false or inaccurate data. If they make a mistake, they have to update and correct any inaccuracies that are pointed out to them and let the credit bureaus know about this. In the case of businesses and creditors, if any accounts were opened by identity thieves in the person’s name, they need to stop reporting on them altogether.

They also have to tell the person about any negative reports they make within 30 days and they’re obliged to let the credit bureau know if you voluntarily close an account with them.

Consumer Reporting and Background Check Agencies

Consumer Reporting Agencies (CRAs) are the groups that actually collect information on your credit history and shape your credit score. That includes the credit bureaus Experian, Equifax, and TransUnion as well as candidate screening, tenant screening and general background check sites like Checkr, HireRight, EmpInfo, American Databank, IntelliCorp, FADV, RentBureau, OPENOnline, and TrueWork.

These groups have to provide you with a copy of your file on request (provided you can prove who you are). They have to provide this for free once a year through the website annualcreditreport.com or at any time if you’re on welfare, unemployed and looking for a job within 60 days, you’ve been a victim of identity theft, or your credit report has inaccuracies in it because of past identity theft.

They also have to investigate any disputed information, correct or delete inaccuracies within 30 days of the dispute and delete any negative information that’s more than 7-10 years old (depending on the kind of information).

CRAs must ensure that the only people who can access your file are yourself, businesses that have a valid reason for viewing your credit report, and employers that have your written consent.

Individual Rights Under the FCRA

The FCRA outlines a number of policies for people who are the subject of a background check by an employer or credit agency.

When it comes to credit, you have the right to access all records in your name, check your credit score and dispute, in writing, any inaccurate information on your credit report with whoever furnished that information. When they receive your complaint, the creditor has to then notify the credit bureau. From there, the credit bureau can’t keep reporting this information until they’ve investigated the dispute and figured out whether your complaint is valid.

When it comes to employment, employers can’t ask a third party to run a background check without your permission unless they have very good reason to believe that you’ve done something terrible. If they’re commissioning an investigative report, as in one that’s based on personal interviews about the kind of person you are, they need to talk to you about the nature and scope of this investigation first.

In any case, you can also seek damages from any companies that violate your rights under the FCRA. More on that in a moment.

Note that these rules only apply to information that isn’t held on the public record. You can’t stop people finding things out about you if these things are held on public databases, even if they have to pay to run the search, and they don’t have to tell you about it when they do!

Details kept on public registers in the US typically include birth, death, marriage, divorce, criminal and bankruptcy records, and all states are required to make records of convicted sex offenders public. Individual states may allow a lot more than this to go on the public record, though. Depending on where you live, people may be able to search your tax information, real estate deeds and transactions, unemployment claims, political campaign contributions and various types of licenses, certifications and census records.

How Does the FCRA Govern Online Background Checks?

The rules vary for different types of background check and the person buying the report is liable for breaches as well as the agency. This makes it super important that you only commission online background checks from sites that you trust to stay on the right side of the law.

Look out for sites that clearly state that they are FCRA-compliant and/or a member of the National Association of Professional Background Screeners (NAPBS). These companies will already have done the legwork to get the system right.

When it comes to enforcing the rules, this is handled by the US Federal Trade Commission and the Consumer Financial Protection Bureau.

Very often, though, complaints are made by individuals who realize that their data has been used or accessed for illegal means or in violation of the FCRA. These people may then choose to take out a lawsuit privately.

What Happens if You Break FCRA Rules?

If you fail to comply with the FCRA when running or requesting a background check, you could find that the state or federal government takes enforcement action against you, or that someone takes you to court.

Things get worse if you deliberately obtain a consumer report on someone under false pretenses. This can get you arrested by the police and prosecuted for fraud.

Consumers who find out that their rights have been violated under the FCRA can push for damages, attorney’s fees, and court costs.

There are three types of damages to think about here: actual, statutory and punitive. Actual damages covers money that the person lost directly as a result of the breach. Statutory damages are standard amounts set by the FCRA and range from $100 to $1000 per violation.

The type you really need to worry about, though, is punitive damages. This isn’t a fixed amount – the court can decide how much you have to pay based on whether you broke the law deliberately, how unethical they consider your behavior to be and how hurtful this was to the person whose background was searched.

You can imagine how these numbers can quickly spiral, especially if the information you collected was illegally published or leaked in some way that seriously damaged the person’s reputation.

Situations like these aren’t rare, either. 4,531 FCRA-related lawsuits were filed in 2018 alone and the number has risen steadily year-on-year since 2011. You must make sure you stay in line with the rules if you don’t want to get sued!

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Why Does the FCRA Matter?

The FCRA rules are there to protect everyone. That means striking a balance between transparency and limiting access when there’s no valid reason to see it.

The regulations aim to give businesses, employers, landlords and so on a legitimate way to check that a person is reliable while ensuring their privacy is maintained the rest of the time. A random person can’t view your credit or employment history, either out of idle curiosity or because they want to use this information to hurt you in some way.

Sure, compliance may sometimes be frustrating. Sure, you might feel you need to know things about a person that aren’t in the public domain. But the fact remains, you need to respect these rules… not just because you might get sued if you don’t, but also because breaking them is ethically wrong. And if you’re using online services, make sure that they adhere to this too.