Ensuring Fair Hiring: Understanding the CFPB’s Guidelines on Background Checks

As an employer, you rely on background checks to make informed hiring decisions. However, recent guidelines issued by the Consumer Financial Protection Bureau (CFPB) emphasize the importance of fair and accurate information in the hiring process.

The CFPB’s Two Key Guidelines:

• Access to All Information: Employers have the right to receive complete background check reports from their providers when doing screening. These reports include all information the company has gathered, not just a summary. It ensures you make informed decisions based on a full picture of the candidate.

• Omitting Outdated Information: Background checks should not include outdated or inaccurate information. For example, legally expunged or sealed records or information beyond its relevant timeframe. Basing decisions on outdated information can lead to unfair hiring practices and potentially legal ramifications.

These are not bureaucratic requirements by the CFPB but kind guidelines that call for fostering fair hiring practices. They help ensure that employment decisions hinge upon current, relevant, and accurate information, thus minimizing the likelihood of discrimination and promoting a fair hiring process.

The CFPB’s guidelines are rooted in the Fair Credit Reporting Act (FCRA), which protects consumers’ rights regarding the accuracy and privacy of their background check information.

Fair Credit Reporting Act (FCRA) and Background Checks

The Fair Credit Reporting Act (FCRA) is a federal law enacted in 1970 to ensure the accuracy, fairness, and privacy of information in consumer reports used for credit, employment, insurance, and other purposes. This Act includes information used in background checks.

The FCRA establishes several key regulations for background checks:

• Accuracy: Background check companies must ensure the information they report is accurate and up to date.

• Fairness: Employers cannot discriminate against candidates based on inaccurate or outdated information in their background reports.

• Consumer Rights: Individuals can access their credit reports and dispute any errors.

• Data Security: Background check companies must take reasonable steps to protect the privacy and security of consumer information.

By regulating background checks, the FCRA aims to prevent unfair hiring practices based on inaccurate or irrelevant information and empowers individuals to control the information in these reports.

Outdated Information in Background Checks

The CFPB and FCRA guidelines emphasize that background checks should not include specific types of outdated information:

• Arrests not leading to convictions: An arrest alone does not indicate guilt, and including such information in a background check can be discriminatory.

• Bankruptcies discharged more than seven years ago: Individuals who have successfully undergone bankruptcy proceedings shouldn’t be penalized for past financial difficulties after a specific timeframe.

• Civil judgments satisfied more than seven years ago: Similar to bankruptcies, settled civil judgments shouldn’t be held against individuals indefinitely.

• Depending on the job and location, negative information can include data related to juvenile records, some forms of medical debt or information not relevant to the specific job responsibilities.

Employers and background check companies should know these limitations and ensure their information adheres to the FCRA and CFPB guidelines.

Adverse Action and Employer Obligations

The FCRA defines adverse action as any employment decision that disfavors a candidate based on information in a background check report, such as denial of employment, hiring on less favorable terms, or placing the candidate on a no-hire list.

If an employer takes adverse action against a candidate based on a background check report, the FCRA requires them to:

• Background check disclosure. Provide the candidate with a copy of the background check report and a pre-adverse action notice. This notice informs the candidate of their potential rights to dispute the report’s accuracy.

• Wait a specific period (usually a few days) before final action. This period – usually five business days –allows the candidate to review the report and dispute any inaccuracies.

• Consider all explanations or disputes provided by the candidate. If the applicant disputes the report’s accuracy, the employer must investigate and take reasonable steps to verify the information before reaching a final decision.

• By fulfilling these obligations, employers can ensure they comply with the FCRA while utilizing background checks as a responsible tool in the hiring process.

Additionally, the FCRA requires employers to take specific steps if they take adverse action against a candidate based on a background check report, such as providing them with a copy of the report and an opportunity to dispute its accuracy.

At backgroundchecks.com, we understand the importance of adhering to all regulatory changes, including the CFPB’s latest guidelines. We take the following steps to ensure you receive accurate and compliant background check reports:

• We stay up-to-date: Our team constantly monitors regulatory changes and updates our processes accordingly.

• We source information responsibly: We work with reliable data sources that adhere to legal restrictions and provide accurate information.

• We provide complete reports: You receive comprehensive background check reports, including all relevant information gathered during the screening process.

• We offer expert guidance: Our team is here to answer any background checks and compliance questions.

The CFPB’s recent guidelines serve as a reminder of the critical role accurate and comprehensive background checks play in the employment process. For employers, partnering with a diligent and compliant background check company is essential to maintaining integrity and fairness in hiring practices. Read more about what shows up on background checks in our screening guide.