Adverse Action: What is it and are you compliant with the law?
The term Adverse Action is explained in Section 603 of the Fair Credit Reporting Act as all business, credit, and employment actions affecting consumers that can be considered to have a negative impact. In the employment screening world, this would include denying employment, promotion, or raise. In the tenant screening world, this would include not renting to an individual, charging them a higher amount of rent, or modifying the lease term due to information gained through their background check. There are a few laws that an End User (employer / tenant screener) must legally comply with when running a background report for an applicant or tenant, one of which is the Adverse Action notices.
What is an Adverse Action letter? With respect to background checks, an Adverse Action letter is a written notice required by federal law that informs a job candidate he or she will not be hired because of findings in a background check.
The Fair Credit Reporting Act (FCRA) defines the law requiring a strict set of rules that must be followed when informing an applicant or employee that adverse action is being taken. These rules are designed to protect the applicant and provide a path to dispute the findings if the report is believed to be inaccurate. But before the background check begins, FCRA disclosures and authorization requirements specify strict procedures for notifying the applicant or employee, and securing written permission to conduct the background check.
If taking an adverse action on information obtained from the background report, the End User must send a Pre-Adverse Action letter. The FCRA says the letter can be sent electronically. However, we suggest that if you do send electronically, you also send a copy by mail. This letter will notify the applicant that information obtained from their background report may affect them negatively. At this time, the notifying letter must also include a copy of the background report along with a summary of the consumer’s rights.
Here is a sample of the Pre-Adverse Action letter…
Pre-Adverse Action Letter
DATE
APPLICANT FULL NAME
APPLICANT STREET ADDRESS
APPLICANT CITY, STATE ZIP CODE
Dear Applicant,
In connection with your application for employment or promotion with COMPANY NAME, you authorized COMPANY NAME to perform a background check, either with internal resources or by using an outside agency. Your application for employment with COMPANY NAME is currently under review and you may be eliminated from further consideration based on information received from the consumer reporting agency listed below.
You also have the right to dispute the accuracy of the information contained in the report by contacting the consumer reporting agency directly.
Reference Services, Inc.
101 Plaza East Blvd., Suite 300
Evansville, IN 47715
(800) 881-0754
If, after reviewing the report, you believe that information contained in it is inaccurate and/or you want to know what information in the report falls outside of our company guidelines, we ask that you contact us directly within 5 days. Also, contact us directly within 5 days if you believe that there is additional information that may help us better evaluate your fitness for this position. Otherwise, we will assume that you no longer wish to pursue employment with us.
Please be advised that Reference Services, Inc. provided the report but did not make the decision to take the adverse action and is therefore unable to provide you with specific reasons as to why the adverse action was taken.
This letter is sent to you in compliance with the Fair Credit Reporting Act.
Sincerely,
COMPANY NAME
Once the Pre-Adverse Action notice has been sent, the employer must allow the applicant reasonable time to review and absorb the documents and then dispute them if they do not believe the information to be accurate. FCRA does not define the amount of time an employer should provide to dispute records; however, the courts have ruled that 5 business days is adequate as stated in the sample Pre-Adverse Action letter sample above.
If after 5 business days the applicant has not filed a dispute with the background screener, the End User can then send the Post-Adverse Action notice to the applicant.
Here is a sample of the Post-Adverse Action letter…
Post-Adverse Action Letter
DATE
APPLICANT FULL NAME
APPLICANT STREET ADDRESS
APPLICANT CITY, STATE, ZIP CODE
Dear Applicant,
In connection with your application for employment or promotion with COMPANY NAME, you authorized COMPANY NAME to perform a background check, either with internal resources or by using an outside agency. The Company notified you by letter dated PRE-ADVERSE DATE of its preliminary decision to eliminate you from further consideration for employment or promotion based wholly or partially on the information contained in the report and gave you 5 days to review the report and provide corrected or complete information.
This letter serves as notification that we are unable to further consider you for employment at this time. This decision was influenced in whole or in part by a consumer report obtained through the Consumer Reporting Agency listed below.
Reference Services, Inc.
101 Plaza East Blvd., Suite 300
Evansville, IN 47715
(800) 881-0754
Reference Services, Inc. did not make the decision to deny you employment or promotion and they are unable to provide specific reasons as to why this decision was made.
In accordance with the Fair Credit Reporting Act, you have previously received a copy of this information and a copy of your rights under the Act. You have the right to obtain the information in your report by contacting Reference Services, Inc. This information will be provided for free if you contact Reference Services, Inc. within sixty (60) days of the date you received this letter. You have the right to dispute the accuracy and completeness of any information in the report.
Thank you for your interest in employment with our organization.
Sincerely,
COMPANY NAME
As demonstrated with both Adverse Action letters above, neither letter goes in to detail about the background screening report or the specific reasons for taking adverse action. The letter is the process of giving notice and providing the applicant the opportunity to dispute the findings.
As a Consumer Reporting Agency, Reference Services Inc provides a simple to use online system to manage the adverse action process and print the pre- and post-letters with just a few simple steps. If you have questions about adverse action or would like a demonstration of our online system, please give us a call at 812-474-9000 or email compliance@referenceservices.com.
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Reference Services, Inc is headquartered in Evansville, IN and has remained one of the premier employment background screening companies in the country. Clients representing almost every industry imaginable rely on RSI to provide fast, accurate and legally compliant background checks on their applicants so they can hire a more productive, safer, and reliable workforce. www.referenceservices.com