There are reports of increasing litigation over credit reporting activities by employers. That is due in part to the fact that more employers are routinely conducting background checks. It is also due to the fact that employers may not comply with the Fair Credit Reporting Act when it applies. Penalties under FCRA can range from $100 to $1,000 per violation. Also, in addition to actual damages such as lost wages, punitive damages are also available even when actual damages cannot be proved.
There are three disclosure provisions under FCRA. First, an employer must obtain a written authorization form from applicant or employee before running a consumer report. This authorization must be a stand-alone form, not a notice or clause in an application. Second, there must be a pre-adverse action notice when negative information is found. This requirement is often ignored because it can hamstring or slow the employer’s attempt to fill an open position. The law intends that the applicant or employee will have an opportunity to learn the negative information and respond to it. Third, an employer must provide a post-adverse action notice if a decision was based on the negative consumer report. Then, the applicant or employee has a reasonable time to dispute and correct the information.