The Facts About Adverse Action Documents

pre adverse action letterWhen using a third-party vendor to do a background check on prospective employees, you should be aware of the federal regulations regarding “pre-adverse” and “adverse action” documents. “Adverse action” is defined by the Fair Credit Reporting Act (FCRA) as an action which includes, “all business, credit, and employment actions affecting consumers that can be considered to have a negative impact as defined by Section 603(k) of the FCRA–such as denying or canceling credit or insurance, or denying employment or promotion.”

On occasion, you may receive information in a consumer report that will cause you to not want to hire a particular applicant. When this happens, you must adhere to the following procedure as outlined by the Fair Credit Reporting Act:

  1. Notify the applicant that you are considering denying their job application based on information you received in their credit report. This is the “pre-adverse action letter.”
  2. By law, you are required to allow the applicant 60 days to investigate and correct any erroneous information.
  3. If they choose to contest the information provided in the credit report, you (the employer) and the background check company have 30 days to look into the disputed information.
  4. If the applicant chooses not to contest the information provided in the credit report or further investigation proves the information in the report to be true, a notice of adverse action must be furnished to the applicant. This is the notification that you have decided not to hire the applicant for reasons pertaining to their credit report.

This process may seem cumbersome, but it is necessary to be sure that no adverse action can be taken against applicants without their knowledge. It’s important to be sure the company you choose to do your background checks is well-versed in all the pertinent legal processes.