44 JANUARY / FEBRUARY 2019 HUMAN RESOURCES Debra A. Mastrian Partner SmithAmundsen LLC dmastrian@salawus.com SmithAmundsen LLC is a Diamond Associate Member of the Indiana Bankers Association. Employee Background Checks Fair Credit Reporting Act requirements Employers conduct employee background checks to reduce risk and improve hiring decisions. Financial institutions have a special obligation to use care when hiring, due to regulatory obligations and the nature of their relationship with customers. For example, Section 19 of the Federal Deposit Insurance Act prohibits an institution insured by the Federal Deposit Insurance Corp. from hiring or employing anyone who has been convicted of, or entered into, a pre-trial diversion for a crime involving dishonesty, breach of trust or money laundering, unless there is prior written approval from the FDIC. There are significant monetary and criminal penalties for violations of Section 19. While poor hiring decisions can lead to legal liability, financial troubles and reputational damage, so can missteps during the background-check process. The Fair Credit Reporting Act (FCRA) imposes various requirements on employers when they obtain consumer reports from consumer reporting agencies. FCRA defines “consumer reports” broadly to include most background checks and criminal history reports, as well as credit reports. Any person or entity that provides a consumer report to another person or entity is considered a “consumer reporting agency.” Before an employer may obtain a consumer report from a consumer reporting entity, it must provide the employee or applicant a clear and conspicuous written disclosure that information obtained from the consumer report may be used to make employment decisions and must get written authorization to obtain the report. The disclosure and authorization may be included on one form, but it must be a standalone document, and it may not include or request any extraneous information. An employer must also distribute a copy of the document titled “A Summary of Your Rights Under the Fair Credit Report Act” (FCRA Summary of Rights) along with the disclosure form. On Sept. 12, 2018, the Consumer Financial Protection Bureau (CFPB) released an updated FCRA Summary of Rights notice. Employers should be sure to use the updated version of the notice and be mindful that the notice could be revised in the future. The FCRA Summary of Rights is available in both English and Spanish on the CFPB website. If an employer decides to take any “adverse action” (e.g. reject an application, revoke a conditional offer of employment, deny a promotion, terminate, etc.) that is based either in whole or in part on the consumer report, the employer must typically follow a two-step process: First, before taking adverse action, the employer must give the applicant or employee a “pre-adverse action” notice advising the individual of the intended adverse employment action and include: (1) a copy of the actual consumer report at issue; and (2) another copy of the FCRA Summary of Rights notice. This requirement allows the applicant or employee an opportunity to discuss the report with the employer and point out any inaccuracies before the adverse action is taken. Under FCRA, this pre-adverse action notice can be verbal, electronic or in writing, although written notice is highly recommended in case the employer is later called upon to document its compliance with FCRA. Second, if after sending the pre-adverse action notice and waiting a “reasonable” period of time, the employer still wants to take adverse action, it must send an adverse action notification. The adverse action notice must include: (1) the name, address and phone number of the consumer reporting agency that provided the report; (2) a statement that the consumer reporting
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