Most companies think they’re doing the right thing by hiring a third-party screening agency to conduct background checks. In many cases, especially if they’re working with a nationally-accredited agency like Active Screening, that’s true. But some very big names are facing huge class action lawsuits because they partnered with the wrong screening agency.

Pizza Hut.

Whole Foods.


Dollar General.

Paramount Pictures.

The issue, as pointed out in this JD Supra Business Advisor article, is that the screening agencies these companies used failed to comply with the Fair Credit Reporting Act (FCRA) by using insufficient disclosure forms.

Let’s dig deep with some of this terminology so we can get a better understanding of what went down and how you can prevent this from happening to your company.

The FCRA is the federal law that oversees employers’ use of background reports during the hiring process. The law regulates the exchange of information between Consumer Reporting Agencies (CRAs) and employers.

A company is a CRA if it assembles and evaluates consumer report information and provides those reports to third parties
for monetary purposes. Active Screening is a CRA because we collect, assemble, evaluate and report consumer information to companies who hire us to conduct background checks on candidates.

The Fair Credit Reporting Act (FCRA) holds CRAs and the creditors that provide the information in your credit report responsible for correcting inaccurate or incomplete information in your report.

The FCRA is detailed and rigorous. One of the most important steps it requires of employers and CRAs is to use proper disclosure forms. By law, you have to be informed that a background check is part of the hiring process. And by law, you have to sign off on it (authorize) before we can conduct the screening. That’s where these disclosure forms come in. As the JD Supra article says, “If those forms do not comply with the FCRA, it is nearly impossible to defend class action claims on the merits. The plaintiffs’ class action bar has figured out that these might be some of the easiest and most lucrative class action lawsuits around.”

And that’s where we find those big name companies – in the throes of costly lawsuits because the disclosure forms weren’t up to FCRA standards.

Here’s what a disclosure form needs to have:

• It’s written

• It’s asked for on a form separate from any other forms related to the candidate’s application for the job

• It’s required if you will hire an outside agency (like Active Screening) to check out a candidate

• Consent often includes the right to inquire about a candidate’s credit report (but this should be specifically stated)

• There can be no waivers, additional wording, or other unneccessary information on the form that can be confusing to applicants

  • The disclosure must provide specific information about the person’s rights to obtain information regarding the investigative report, including that they can view the file maintained by the consumer reporting agency, obtain a copy of the file by mail or in person, or obtain a summary of the report over the telephone.

• It’s required to obtain extra information like school transcripts or military service records

• An applicant does NOT have to consent to a background check. You are entitled to take them out of consideration if they do not consent.

So, what can you do to ensure the third-party CRA you’ve hired to conduct your background checks is on the ball with consent and compliance? Ask to see the forms. Have an employment attorney review them. And conduct your own periodic reviews of your CRAs consent forms to pick up if anything has been changed.

In Active Screening’s case, we have made our consent form templates completely transparent and available on our website. The template we offer is in full compliance with federal and state laws. It has been vetted by our FCRA attorney who is a veteran in the industry. If you want to take a look for yourself, click here. There’s even some state specific forms for California and New York who have additional compliance laws employers and CRAs need to follow.

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