What restrictions are there on using criminal background checks in the hiring process?

By Ryan Orr, JD, HR and Compliance Consultant – Cascade Employers Association – [email protected]

Due to the potential risk of disparate impact discrimination, the EEOC suggests that employers should not deny employment to individuals based solely on a record of an arrest, charge, or conviction. Instead, consider the nature of the job, the nature and severity of the offense, and the amount of time since the conviction.

Give applicants an opportunity to explain, and consider their explanations. Also, remember that an arrest or charge does not necessarily mean that the applicant actually committed the offense.

Additionally, don’t forget that employers are required to advise applicants in writing that they will be subject to a criminal background check, to obtain written authorization from the applicant to conduct the check, and to advise the applicant that a conviction or arrest will not automatically result in disqualification from employment.

Reprinted with permission from Cascade Employers Association

What is the difference between a hard and a soft credit inquiry?

Every time your credit report is requested the reason for the request is transmitted to the credit bureau. What that reason in will determine whether the request is a “Hard Pull” that will show as an inquiry on your credit report or a “Soft Pull” that will not show at all.

The most common requests that result in a soft pull are for employment screening, business screening if you are a business owner or any consumer copies that you request on yourself. These soft pulls have no impact on your credit report or score.

Requests for some type of financing like a car loan, mortgage, credit card, elective medical procedure or when applying to rent an apartment or house are typically a hard pull and will show as an inquiry on your credit report for two years. The inquiry should include information about who pulled your credit report and what the reason was. Inquiries may have a small impact on your credit score for up to one year depending on the reason, the number of inquiries and the time frame they occurred in.

Can a pull a credit report before I hire someone?

This is a question asked by many employers seeking ways to understand their candidates, identify potential risks and differentiate between applicants. The answer is, once again, it depends…

There are currently ten states that have laws in place restricting an employer’s ability to use credit in hiring decisions and the EEOC has some very strong guidance for employers as well. While there may be exceptions to these prohibitions he test is typically whether a consumer’s credit information is “substantially job-related” or “essential” to a particular job and the burden is on the employer to prove that.

If you have questions about including or continuing to include employment credit reports to you background screening program please contact us today.

Why doesn’t my credit report have a score?

Your credit score (aka risk score, risk predictor, etc) means a numerical value or a categorization derived from a statistical tool or modeling system used to predict the likelihood of certain credit behaviors. Basically this means there very complicated math problems that look at a bunch of information a credit report and turn that into a single number that tells the end user how likely a certain behavior is. Different scoring models are used to predict different behaviors, for example the likelihood of a consumer filing bankruptcy is calculated differently than the likelihood that they will fail to pay their auto loan.

If a credit report is being pulled for a purpose where these behaviors aren’t important, like employment screening, the end user will not be provided with a credit score. When you pull your own consumer credit report (www.annualcreditreport.com) you won’t get a score either because the purpose is simply to make sure that all the information is accurate. Likewise, if the end user doesn’t request a credit score one won’t be provided.

It is possible that a credit score is relevant and has been requested, but no score is generated. If the consumer does not have a credit report the scoring model won’t be able to generate a score. This could happen to someone who new to credit like young adults, recent immigrants or people who prefer to use only cash. We also see this occur sometimes when someone changes their name and/or address and the credit bureau(s) create a second credit report for the consumer under the new information.

The scoring models also have minimum requirements to generate a score. Here are some of the requirements for a FICO, the most common scoring provider, score. If no records on a consumer’s credit report meet these requirements, the credit report will not generate a credit score.

  • The report must have at least one account that has been open for six months or longer
  • The report must have at least one undisputed account that has been updated in the last six months
  • The report must be free of any deceased indicators. (This could be a problem is the consumer is joint on an account with a deceased co-borrower.)

What is an Adverse Action Notice?

Whether you are the subject or requestor of a consumer report it’s very important to understand what an “Adverse Action” is and what that means to you.

A consumer report can be a criminal background check, a credit check, the verification of previous employment or any other information about the subject that is provided by a consumer reporting agency (CRA) and is then used by the requestor as a factor in determining the consumer’s eligibility to borrow money, get insurance, be hired, rent a property, etc. After receiving a consumer report the end user will decide whether they will make an offer to the subject and what the terms will be. Based on the information in the consumer report:

  • a property manager might decided to rent to the consumer, but they could require an additional deposit or co-signer because the individual doesn’t have an previous rental history.
  • an insurance company may decide to raise the consumer’s rate because of a collection on their credit report.
  • financial institution might offer the consumer a loan at a higher interest rate because they recently filed bankruptcy.
  • an employer may decide not to offer the consumer a job because they lied about their educational history.

Each of the examples above and any decision adverse to the interests of the consumer is considered an “Adverse Action” by the Fair Credit Reporting Act (FCRA) and places obligations on the end user and offers protections to the consumer.

Any end user taking adverse action(s) based on any information provided in a consumer report is required to provide the consumer with notification of the adverse action, contact information for the CRA that provided the report, and notification of the consumer’s right to obtain a free copy of the report and to dispute the accuracy of completeness of the report if the information provided is not correct. If the report includes a credit score (a numerical value or categorization that predicts certain credit behaviors) then adverse action notification must include the score, the scoring range, the key factors determining the score, the date it was created on and information about the score provider. If the report is being used for employment purposes (hiring, retention or promotion) the end user has an even greater burden and is not able to take any adverse action before providing the consumer with a copy of the report and a description of their rights This notification is commonly called a Pre-Adverse Action notification. Groups with volunteers should note that the Federal Trade Commission (FTC) has stated that “employment purposes” is liberally interpreted to include volunteers so these notification obligations would apply for volunteer background checks as well.

These end user obligations can be complicated so check with your CRA and qualified legal counsel if you have any questions.

How do you know who a criminal record belongs to?

The most critical question anytime a record is reported in a consumer report is whether it is referring to the subject of the background check. Most (but not all) consumer reporting agencies (CRAs) will only report a record if there are multiple identifiers that match the consumer information available.

Backing up a few steps, identifiers are things like full name, date of birth (DOB), address, driver’s license and social security number (SSN). Put together, there should be a unique set of identifiers for every consumer. Public records like criminal records are typically entered by name and may including one or more additional identifiers as part of the record or in the file. Public records rarely include social security information because social security numbers are not public information so CRAs rely on dates of birth, driver’s license numbers and addresses when they are available. In many jurisdictions we actually have to go to the court clerks and/or the original case files to confirm or exclude a possible record because the public record source doesn’t make any information beyond name accessible.

Some CRAs will use a process called extemporaneous notification where they will report a record (typically from a database) and they will just notify the consumer ofthe derogatory information reported about them so that the consumer can dispute the record if it is not accurate. This process is allowed by the Fair Credit Reporting Act (FCRA), but it can be problematic for an End User if they make a decision based on the report before the consumer has a chance to dispute information that is not correct.

Even with processes in place to only report records with multiple identifiers there are rare incidents when a record can be reported in error. One such situation can occur when two people with the same name and birth date are living in the same area. Another case we have encountered is when a consumer is the victim of identity theft and the thief has been convicted of a crime under that assumed identity. For a consumer in either situation it can be scary, but the (pre)Adverse Action and Dispute and Reinvestigation requirements in the FCRA are there to protect them.

Why are there flags/alerts on my credit reports?

The “Address Discrepancy Rules” set by the Federal government in the Fair & Accurate Credit Transaction Act (FACT Act) are one of the most common reasons why a flag or alert will appear on a consumer credit report.

The nationwide consumer reporting agencies (“NCRA”, e.g. Experian, Equifax and/or TransUnion) are required to notify all end users of consumer credit reports (including landlords and employers) anytime the address provided when the credit report was requested “substantially differs” from the address the NCRA has in the consumer’s file. The primary purpose of the Address Discrepancy Rules is to enhance the accuracy of consumer reports. They focus on determining whether a notice of address discrepancy indicates that the end user does not have the correct credit report for the consumer they are screening.

Whenever an end user receives a credit report with a notice of address discrepancy from an NCRA they are obligated to “develop and implement reasonable policies and procedures” to form a reasonable belief that the consumer credit report is related to the consumer being screened.

The Address Discrepancy Rules are purposefully vague to accommodate a wide variety of businesses and all end users of credit reports are strongly encouraged to review all policies, procedures and documents, including those related to the Address Discrepancy Rules, with a qualified and experienced legal professional. For landlords or employers obtaining credit, compliance means developing and following a set of policies and procedures outlining your response if and when you receive a notice of address discrepancy. Your response could include:

  • Asking questions of the consumer to confirm that the content of the credit report pertains to them.
  • Cross-checking the current and previous addresses returned on the report with those provided by the consumer.
  • Confirming that the information entered when requesting then consumer report is accurate.
  • Cross-checking the account information on the consumer report with materials provided by the consumer.
  • Using information from the consumer or a third-party to verify that the consumer report pertains to the consumer.
  • The regulation also indicates that other “reasonable” authentication procedures may be used.

What is the difference between a SSN Trace, SSN Validation, SSN Verification and an Eligibility to Work verification?

Social Security Number (SSN)-based screening products can be some of the most confusing to navigate because there are many different types and they are all used at different times for different purposes. The following guide will break down the most common SSN-based products, what they are used for and when to use them.

SSN & Address Validations

AKA: SSN Trace, Person Search, Credit Header, etc.

It is the search of a database that may contain information about the issuing location, issue date, death index status, names and addresses associated with a specific SSN.

It is not a direct verification with the Social Security Administration that the specific SSN belongs to the person being screened.

Uses: The search can help indicate whether the SSN is likely accurate or not. It is good supplemental tool for locating addresses linked to the applicant that s/he may have omitted from the application purposely and it is also an investigational tool used to determine who to search for and where to look when conducting a criminal record search.

Timing: This search may be conducted pre-hire.

Limitations: Adverse actions should not be taken based on the results of the search, it is an investigational tool. This search does not fulfill post-hire, eligibility to work verification requirements.

SSN Verifications

AKA: Consent Based Social Security Verification (CBSV), Social Security Number Verification Service (SSNVS)

It is the search of the Social Security Administration (SSA) official record to verify that the information (name, address, date of birth, etc) obtained from an applicant matches the information the data in the SSA records.

It is not a verification of identity, citizenship or employment eligibility.

Uses: The CBSV search provides SSN verifications with the consent of the applicant for a disclosed business purpose. The SSNVS is used only wage reporting purposes to assure that W-2 forms have been completed correctly.

Timing: The CBSV may be requested at any with a signed authorization from the applicant. The SSNVS may only be pulled by an employer post-hire.

Limitations: CBSV searches can only be requested after the applicant has signed the SSA Form 89 Authorization for the SSA To Release SSN Verification. SSNVS searches can only be conducted post-hire for wage reporting purposes. This verification is not an investigation tool and does not provide additional

Eligibility to Work Verifications

AKA: E-Verify, Form I-9

It is the review of government documents or databases by an employer to determine that they only employ individuals who may legally work in the United States.

It is not an investigation tool or part of a background check.

Uses: E-Verify is an electronic system that compares information from an employee’s Form I-9, Employment Eligibility Verification, to data from U.S. Department of Homeland Security and SSA records to confirm employment eligibility. It is illegal for businesses to employ workers who are not eligible to work in this country.

Timing: Employers may verify a new hire’s eligibility to work via Form I-9 (and, in some cases, E-Verify) after the prospective employee has accepted an employment offer and no later than the third business day after the new employee starts work for pay.

Limitations: These verifications cannot be used as a pre-screening tool or part of a background check. They can only be used for employment purposes for verifying a new employee’s eligibility to work.

Here is a good comparison of SSN-based searches and additional information is available on the SSA and USCIS websites.

Why are there so many criminal search options? Can’t I just search everywhere like they do on TV?

Unfortunately the reality of criminal searches is nothing like what it looks like on TV and there is no single source for every criminal record in the United States.

Even the FBI’s database, the National Crime Information Center, is not probable cause for a law enforcement agency to take action. Any positive NCIC response must be verified with the entering agency to make sure the information is accurate and up-to-date. Law enforcement systems are generally not accessible for most background screening purposes and contain information to assist law enforcement agencies with investigating criminal activity not information regarding criminal convictions.

Criminal justice systems, for example a county court, are the primary source for a criminal records search. When a case has been adjudicated in a court of law and the defendant has plead guilty or been found guilty by a judge or jury of their peers that is information that can be used in making a risk management decision. The organization of criminal courts vary state by state so the scope of a criminal search and the costs associated can vary as well.

There are data aggregators (aka wholesalers) that purchase or “screen scrape” criminal information from accessible courts and criminal justice agencies. These large databases can be a great way to supplement a criminal records search with data from many jurisdictions and agencies, but they also have significant limitations. Aggregated information is always out of date, many jurisdictions do not contribute data, records do not always contain personal identifiers to confirm who the record belongs to and incorrect information is often not updated or corrected. Many of these instant databases are available online for anyone to use, but most do not provide FCRA compliant results which is extremely important if your purpose behind pulling the information could adversely impact a consumer.

Where can I obtain credit information about my applicants?

Your credit report contains sensitive Personally Identifiable Information (PII) so, as you can imagine, there are many laws and regulations (Federal, State and/or Local) that govern the release of this information. Here are some of the most important points:

  • Credit reports may only be requested for a specific Permissible Purpose. The Fair Credit Reporting Act (FCRA) defines the acceptable reasons for obtaining a consumer credit report and the civil and criminal penalties for not complying with the FCRA.
  • In most cases credit reports may only be requested AFTER the consumer has provided signed authorization to the requester giving them permission to obtain a credit report for one specific use.
  • The credit bureaus (TransUnion, Equifax, Experian), also called Nationwide Consumer Reporting Agencies, require all End Users of credit reports to undergo an on-site inspection to assure that they are a legitimate business and are not trying to obtain this information for an illegal or unauthorized purpose. The inspection process also examines how prepared an End User is to safely and securely request, maintain and destroy the PII they will receive.
    • For these reasons, individuals who run a business out of their home and do not maintain a separate, secure business office are not able to receive consumer credit reports.
  • Several states have placed additional restrictions on the use of consumer credit reports. Oregon is one state that specifically restricts the consideration of consumer credit information in most hiring decisions. Employers, here is a summary of credit reporting laws in all 50 states as of March 2013.
  • You have rights and protections whenever your credit report is obtained. Consumers, here is a A Summary of Your Rights Under the Fair Credit Reporting Act.

Credit Reports versus Consumer Reports

This is one of the most frequent questions concerns we hear from consumers who are diligent about protecting their personal information and credit history.

All personal credit reports are consumer reports as defined by the Fair Credit Reporting Act (FCRA), however not all consumer reports contain personal credit information. This is especially confusing since the federal law protecting consumers and regulating consumer reporting, the FCRA, contains the word “Credit” in the title and many of the consumer disclosures and notifications required under the law are very credit oriented.

Here are a few examples to illustrate the issue (in each case the information is being gathered and prepared by a consumer reporting agency):

  • When you apply for an auto loan and your financial institution reviews your credit history that is a Credit Report and a Consumer Report.
  • When you apply to rent an apartment and your property manager reviews your credit and criminal history that is a Credit Report and a Consumer Report.
  • When you apply for a job and your employer reviews your criminal history and driving record that is a Consumer Report.
  • When you apply for a job and your employer reviews your previous job performance obtained by interviewing your professional references that is an Investigative Consumer Report.

Each of the cases above is regulated by the FCRA and other applicable state and local consumer reporting laws.

What is a background check

To put it simply, background checks provide you with data to help you reduce your risks and make better quality decisions.

This information becomes a consumer or investigative consumer report under the federal Fair Credit Reporting Act (FCRA) when it is:

  • about an individual, and
  • could potentially have a negative impact on that person, and
  • is gathered for you by a third party.

Background checks for employment, volunteer and tenant screening purposes are all examples of consumer reports. These reports can contain a single type of information (i.e. a credit report) or they can include information from many sources (e.g. criminal records, employment verification, rental history, education verification, driving records, etc).

The most effective background checks consider the types of risks you face and the decisions you are making and provide you with data targeted to help you make informed risk management decisions.