The pre-adverse and adverse action requirements are a required and critical piece of the Fair Credit Reporting Act (FCRA). The FCRA is essentially a consumer protection law that ensures consumers receive the required disclosure forms and authorize, in writing, a consumer report or investigative consumer report. Furthermore, the FCRA provides consumers with an opportunity to review and dispute (if necessary) any inaccurate or erroneous information in a consumer report or investigative consumer report (background check).
The FCRA requires employers to notify applicants or employees in writing with a 'pre-adverse action notice' before any taking adverse action on an applicant or employee based "in whole or in part" on a consumer report or investigative consumer report.
Adverse action is generally described as any action which may adversely affect an applicant or employee based on information contained in a consumer report or investigative consumer report. Denying an applicant employment based on information in a consumer report or investigative consumer report would certainly be considered adverse. Likewise, considering an applicant for a lesser paying position or something other than the position they originally applied for; or denying a current employee a promotion based on a report could also be considered adverse.
The pre-adverse action notice must also include a copy of the consumer report or investigative consumer report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act." Employers are then required to allow a “reasonable period of time” to pass before sending the adverse action notice to allow the applicant or employee to identify any possible errors or inaccuracies in the report. While the FCRA does not provide a specific amount of time, the Federal Trade Commission's opinion is that a minimum of five business days after receipt of the pre-adverse action notice is "reasonable."
The follow up adverse action notice must include the name, address and telephone number of the consumer reporting agency that prepared the report and a statement that the agency “did not make the decision to take the adverse action and is unable to provide the applicant with the specific reasons why the adverse action was taken.” Furthermore, the employer must provide notice to the applicant of the applicant’s right to obtain another free copy of the background check report from the background check agency within 60 days of the notice, and their right to dispute the accuracy or completeness of any information in the report.
Click on the link below for a pre-adverse and adverse action flowchart.