What is “Adverse Action”?

And why does it matter?

Making a decision not to hire an applicant based on the findings of a credit report is considered an adverse action. When this happens the employer is bound by FCRA to send the applicant two notices: a pre-adverse action notice and an adverse action letter. Each must contain specific information and be dispatched in a timely manner. Any departure from these adverse action requirements violates the rights of the applicant and can land an employer in court.

Pre-Adverse Action Notice

If an applicant is denied a job based on their credit report, they should receive a notice stating their application has been denied based on their background information. They should receive a copy of the report and a copy of “A Summary of Your Rights under the Fair Credit Reporting Act.” They must be given a reasonable amount of time to dispute the accuracy of the information in the report. There is no specified time given by FCRA, but experts suggest 5 business days.

Adverse Action Notice

If within the reasonable amount of time you have given the applicant, they do not appeal the pre-adverse action notice you should proceed with the adverse action notice.

This notice must contain:

  • A statement that the adverse action is based in whole or in part on the information contained in the report by the credit reporting agency.
  • Name, address and toll-free number of the agency you used.
  • A statement that the credit reporting agency had no part in the decision that was made and cannot give specific reasons for the decision.
  • Notice of the applicant’s right to dispute the accuracy or completeness of the report.
  • Notice of the applicant’s right to a free credit report by the credit reporting agency. This is provided upon request by the CRA within 60 days.

Not following these requirements under FCRA, can result in legal trouble for the employer.

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