The Fair Credit Reporting Act requires businesses using background checks and credit reports to adhere to certain guidelines. What actions are violations of the law, and what are the penalties? Find out here.

Operating a business successfully requires more than a good business plan, a solid product or service, and the right staff to get the job done. It also requires business owners to navigate a complex environment—not just of competition, but of regulation. Those regulatory requirements kick in from the moment a business looks to begin hiring new staff members. If you plan on doing your due diligence and carrying out background checks or, as needed, credit checks on prospective employees, you need to know that you're bound by the federal Fair Credit Reporting Act, or FCRA.

Violating the provisions in the FCRA can have potential financial and legal repercussions for a business. Therefore, understanding the major requirements of the FCRA and the most common ways a business might violate those boundaries is essential to avoiding problems. Let's quickly look at the FCRA in broad terms, then explore what qualifies as a violation, so you know what actions to take or avoid.

A Quick Look at the FCRA and What It Does

2021 marked fifty years since the passage of the FCRA. This landmark bill aimed to rein in unethical credit reporting and the unfair and discriminatory usage of credit information in making a wide range of decisions. Since its passage, the FCRA has also undergone amendments and changes that have included other privacy-related improvements related to background checks. Background check agencies face the same reporting requirements as a credit agencies, and businesses who use either type of service are bound by the guidelines the FCRA sets forth. Therefore, it is essential to know what not to do according to this law.

What Counts as a Violation of the FCRA?

There are many ways a business can potentially run afoul of the FCRA, and not all of them are obvious. Let's look at each of the major violation types.

As we can see, employers must have a careful FCRA process in place to remain compliant.

What Are the Penalties and Consequences for a Violation?

The FCRA allows for statutory damages of up to $1,000 per violation at a company. However, the bigger threat lies less in government regulatory fines and more in the civil suits that wronged applicants might bring against a business. If a business engages in a long-term pattern of violating the FCRA, it may expose itself to broad legal liability and potential class action. 

Structuring Smart Processes to Avoid Potential Violations

Clearly, there are many potential headaches associated with FCRA compliance. However, the good news is that it should be easy for most businesses to keep those worries at bay. Knowing your responsibilities is the first step to building a background check process that delivers the information you need without violating the rights of job applicants. Combined with knowledge about how to stamp out discrimination in hiring, your business will have the tools it needs to add staff effectively. 

Learn more about background check solutions and how to use them effectively with our in-depth knowledge base. A good understanding and the right search products can make safe, compliant processes simple.