Running a background check on a job applicant or employee might seem simple—but under federal law, it comes with strings attached. The Fair Credit Reporting Act (FCRA) sets the rules for how employers can use third-party background checks when making hiring, promotion, or termination decisions.
If you use a background check service, you’re legally required to follow the FCRA’s procedures, or you risk costly lawsuits and penalties.
What the FCRA requires for employers
The FCRA doesn’t ban background checks—it regulates them. If you hire a third-party company (a “consumer reporting agency”) to run checks on applicants or employees, you must:
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Get written consent – Before ordering a report, you must provide the applicant with a standalone disclosure and get their signed authorization.
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Provide notice of intent – If you might take adverse action (like not hiring or firing) based on the report, you must give the applicant a copy of the report and a “Summary of Rights” under the FCRA.
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Take adverse action properly – If you decide not to hire (or to fire) based on the report, you must send an official adverse action notice, explaining the decision and providing contact information for the reporting agency.
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Maintain confidentiality – Information from background reports must be kept private and only used for employment purposes.
What counts as a “background check”?
Under the FCRA, background checks can include:
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Criminal history records
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Credit reports
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Driving records
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Education or employment verification
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Professional license checks
If a third-party reporting agency provides the information, the FCRA applies.
Common mistakes employers make
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Combining the disclosure with other hiring paperwork (it must be a separate, standalone form)
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Running a background check without written authorization
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Denying a job without giving the applicant a copy of the report and a chance to dispute errors
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Applying checks inconsistently across applicants, which can also raise discrimination concerns
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Keeping outdated or irrelevant information in consideration (e.g., very old credit issues)
Penalties for violations
FCRA violations can lead to:
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Civil penalties and fines from regulators
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Class action lawsuits from applicants or employees
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Payment of damages, attorney’s fees, and court costs
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Reputational damage for unfair or unlawful hiring practices
How to stay compliant
- Always provide applicants with a clear, standalone disclosure and get written consent.
- Work with reputable background check providers who understand FCRA compliance.
- Follow the pre-adverse and adverse action steps carefully if you reject someone based on a report.
- Apply checks consistently across all applicants for the same role.
- Keep documentation of consent forms and notices in case of an audit.
How Kubera HR Solutions can help
At Kubera HR Solutions, we help employers set up compliant background check procedures, create disclosure and consent forms, and train managers on the do’s and don’ts of using background reports. With the right process in place, you can protect your business, respect applicants’ rights, and make better hiring decisions.