Doing employee screening is valuable only if you do so correctly.

So you heard that employee screening is necessary, and you thought you’d do background checks on potential hires by pulling their credit report and looking at their financial history. You probably think it’s a harmless way to get peace of mind.

If you do, you’re wrong.

In fact, according to The Consumer Credit Reporting Reform Act that has been around since 1997, puts plenty of restrictions on the rights of employers when it comes to credit checks, and gives employees a lot more power. Here’s what you need to know.

You Need Written Consent for Employee Screening

Before you can even think of pulling a commercial credit report on a prospective employee, you need to get their consent to the check, in writing. That consent needs to be conspicuous and clear, and on a separate piece of paper. So you can’t hide it on page 25 of your application form and call it a day!

The best course of action is usually to present them with the consent, tell them what they are consenting too, and then ask them to sign.

Waivers Are Invalid

Another core provision of the amendment to the FCRA is the provision that any waiver your prospective employee signs related to their consumer rights is a contradiction of the law, and automatically void. In other words, the information you receive can only be used for employment screening purposes.

Using Adverse Information

If you do get consent to pull a credit report as part of your employee screening and you find adverse information that affects your hiring decision, you still can’t simply take the candidate off the list and move on to others.

According to the law, you must provide your prospective employee with either a copy of the report, information on how to obtain a free copy of the report, or a verbal breakdown of the information, and allow them to contest the information. They have the right to know where you drew the report, including the name, address and contact information of the agency in question.

The reason for this is that credit reports are not infallible, and there are many that contain outdated information or errors. Failing to hire someone because of incorrect information on their credit report is a recipe for a lawsuit!

Penalties for Non-Compliance

Consumer reports and employee background checks are a part of the process employers use to safeguard against expensive mistakes and nasty surprises, but if they are not handled correctly, they can lead to problems and penalties of their own.

You may find yourself liable for actual costs to employees of up to $1000, as well as potential punitive damages, costs and attorney’s fees. You may also be sued for up to $2500 by the FTC themselves.

In other words, thanks to penalties, you might wind up paying a lot more in legal costs if you get employee screening checks wrong than you would have paid to hire a professional to do it for you.

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