Adverse Action Notice Requirements: What to Know


Document with adverse action notice requirements process for employers

The Fair Credit Reporting Act (FCRA) impacts how employers handle consumer information such as the results in a background check from a third-party agency. If you’re a US employer, understanding the ins and outs of FCRA requirements is not only a legal obligation but a critical step in promoting trust and transparency in your hiring processes.

In this blog post, we demystify the FCRA requirements and explore its key provisions that safeguard both employers and job candidates such as how to meet adverse action notice requirements. “But what exactly are adverse action notice requirements for employers?” Great question! Simply put, these are the legal guidelines employers must follow when making decisions that could negatively impact candidates. In the land of FCRA, this comes into play when considering information from consumer reports, such as background checks, to influence your hiring choices.

We delve into the pre-adverse and adverse action notice process, understanding your obligations, and ensuring you’re well-equipped to handle any dispute or challenge that may arise along the way. We also explore how Certn can be your trusted ally in navigating the FCRA requirements landscape. For example, our enhanced adverse action features streamlines the process, making it a seamless experience for both you and your candidates.

United States flag

What is the FCRA?

Enacted in 1970, the federal Fair Credit Reporting Act (FCRA) is a United States federal law that regulates the collection, dissemination, and use of consumer credit information (to promote fairness and accuracy) and ensure data confidentiality in the credit reporting system. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) enforce the FCRA.

A few key FCRA requirements include:

Consumer Report Consent: Before obtaining a consumer report, such as a credit report or a background check, employers and other entities must obtain written consent from the individual.

Pre-Adverse Action and Adverse Action Notices: When an employer takes adverse action (such as denying employment) based on information from a consumer report, they must provide the affected individual with a pre-adverse action notice, allowing them an opportunity to review the report and dispute any potential errors within the report. If final adverse action is taken, the employer must also provide an adverse action notice explaining the final decision. Here we outline more on FCRA best practices for US employers.

Accuracy and Integrity of Information: Consumer reporting agencies (CRAs), like Certn, and businesses that furnish information to them must take reasonable steps to assure maximum possible accuracy and completeness of consumer information.

Access to Information: Consumers have the right to request and obtain a free copy of their credit report from each of the major credit bureaus (Equifax, Experian, and TransUnion) once every 12 months.

Dispute Resolution: The FCRA provides a process for consumers to dispute inaccurate or incomplete information in their credit reports. Credit reporting agencies must investigate and correct errors within a reasonable time frame.

It’s important to note that non-compliance with the FCRA requirements can lead to legal consequences, including lawsuits and monetary penalties. Therefore, it’s important for employers to be aware of and adhere to the FCRA requirements, such as the notice process, when using consumer reports for employment purposes.

Adverse Action Notice Requirements for Employers

As described above, adverse action notice requirements for employers refer to the legal obligations employers must follow when making adverse employment decisions, in whole or in part, based on a background check through a third-party agency. Adverse action requirements are outlined in many different employment laws, including but not limited to, the FCRA.

As outlined in the Fair Credit Reporting Act, the notice requirements only apply when you’re going to make an adverse employment decision based on some or all of the information in their background check.

US Employer Obligations

If you decide to take adverse action based on information found in a consumer report (the background check), you’re obligated to follow a two-step adverse action notice process when any part of the information in the report will lead to any adverse decision against the applicant including, but not limited to, any decision against hiring, retaining, reassigning, or promoting the applicant.

The objective of this process is to inform the applicant of the possible adverse action and to provide the applicant with an opportunity to review and contest any inaccurate results prior to you making your final decision.

Step 1 – Pre-Adverse Action Letter

After reviewing a completed background check, if you plan on making any decisions that will negatively impact the applicant, you must:

  1. Provide the applicant with notice that you’re considering making an adverse decision based on information in their consumer report (most likely a background check);
  2. Provide the applicant with a copy of the report you’re consulting to make your decision;
  3. Provide the applicant with a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act;” and
  4. Allow sufficient time for the applicant to receive, review, and respond to you (or directly to the consumer reporting agency) with any disputes* related to the information, before making a final decision. 

The required time frame isn’t defined in the FCRA, but a federal opinion letter has determined that fewer than five business days isn’t sufficient, and in no case should the pre-adverse action process (step 1) and adverse action process (step 2) take place at the same time.

*If a candidate files a dispute, the adverse action process must stop and no final decisions can be made until a reinvestigation has been completed by the consumer reporting agency who provided the report.

Step 2 – Adverse Action Letter

If there’s no dispute after waiting the allotted time frame (no fewer than five business days but can be longer depending on the state or locality) you must provide a second notice to the applicant (in writing, verbally, or electronically subject to state and municipal laws). The adverse action letter must include:

  1. A statement that final action has been taken; and
  2. The name, address, and phone number of the third-party consumer reporting agency that provided the report that influenced your decision.

Adverse Action Letter

As we described above, each communication to the candidate must include specific information. Certn’s Compliance Library provides samples of adverse action letters employers can use. 

The best part? You can initiate the pre-adverse and adverse action letter process directly from your Certn platform. Certn allows you to automate parts of the workflow and send the appropriate notices and upload your own documents or individual assessments alongside the candidate’s report.

How to activate adverse action notice requirement in the Certn dashboard

Once the first letter is sent, you can automatically schedule, pause, or cancel the second follow-up letter based on your company’s compliance requirements.

How to send the adverse action letter from the Certn dashboard

The sender and recipient names are customizable along with the body of the message, and clients can download copies of the letter for record keeping or to manage the process manually.

Adverse action notice letter

Further Information for US Employers

It’s essential for employers to be familiar with and comply with these notice requirements to avoid legal repercussions and ensure fair and non-discriminatory practices in the workplace. Keep in mind that employment laws can vary by jurisdiction, so it’s always best to consult with legal professionals to ensure full compliance with applicable state and local laws in your region.

Here we cover more on notice requirements for employers. Again, this information is being provided for general informational purposes only and shouldn’t be construed as legal advice. For legal advice, always contact your legal counsel. The FTC has also published more information on what employers need to know about using consumer reports.

Employer at desk wondering about adverse action notice FAQs

Adverse Action FAQs

What is the meaning of adverse action?

Adverse action in the context of employment is when an employer decides to make any decision that negatively impacts a prospective or current employee based on information found in their background check. This might include not hiring a candidate or not promoting an employee.

What is an example of an adverse action? 

If ABC Credit Cards, in a fictitious scenario, informs their top candidate Trevor that he won’t be hired as a data analyst after a background check reveals that he’s been charged with financial felonies, that’s an example of adverse action.

What is the reason for adverse action notice?

The reason for an adverse action notice is to inform an individual that an adverse action has been or will be taken against them based on information found in their consumer report (such as a credit report or a background check). These notices are a crucial aspect of the Fair Credit Reporting Act (FCRA) and are designed to protect the rights of consumers and promote fairness in the hiring process. There are two main stages where adverse action notices come into play: Step 1 – Pre-Adverse Action Notice and Step 2 – Adverse Action Notice.

What are the different types of adverse action notice?

There are two main stages where adverse action notices come into play: Step 1 – Pre-Adverse Action Notice and Step 2 – Adverse Action Notice.

Step 1 – Pre-Adverse Action Notice: Before an employer takes any final adverse action, such as denying employment based on information in a consumer report, they’re required by the FCRA to provide the affected individual with a pre-adverse action notice. The purpose of the pre-adverse action notice is to give the individual an opportunity to review the consumer report, identify any inaccuracies or errors, and dispute the information if needed. The individual has the right to address any discrepancies with the consumer reporting agency before the employer makes a final decision. 

Step 2 – Adverse Action Notice: If the employer decides to take the adverse action after the waiting period (usually a reasonable time, at least five business days but can be longer depending on the state or locality), they must provide the individual with an adverse action notice.

How Certn Helps Streamline Adverse Action

We know that adjudicating background check reports can be time consuming and complicated. This is where Certn comes in! We can help you streamline your hiring process without compromising accuracy or compliance. 

Save Time on Compliance – Streamline Candidate Communication

Our adverse action features are here to help you navigate the FCRA landscape and streamline your federal pre-adverse and adverse action notice process to make it a seamless experience for both you and your candidates. Contact your account manager or Customer Support to enable the features in your Certn platform. 

Once enabled, you’ll have the option to initiate a pre-adverse and adverse action notice process in compliance with federal FCRA requirements for US candidates as needed. More specifically, this feature allows you to send the first pre-adverse letter with the click of a button from the Certn platform and schedule the second adverse action notice to automatically send after a defined period of time. There’s even a feature that confirms that the candidate has opened the email. 

❓How does Certn help ensure compliance with FCRA requirements for US employers?

Certn helps ensures compliance with FCRA requirements for US employers by providing features that streamline the pre-adverse and adverse action notice process. These features allow employers to initiate the notice process directly from the Certn platform, customize the sender and recipient names, and schedule automatic follow-up notices after a defined period. Certn’s compliance experts also provide guidance and support to ensure that employers understand and meet their legal obligations under the FCRA.

❓Who should use Certn’s automated feature?

Any employer making a negative employment decision for a candidate or employee based in whole, or in part, on a background check.

❓What’s customizable?

The sender and recipient names are customizable along with the body of the message, and clients can download copies of the letter for record keeping or to manage the process manually.

❓What’s the cost?

There’s no extra cost, but it can only be used for US clients running US background checks.

This feature addresses federal letter and notice requirements, but how can I address any additional state and local requirements? 

Certn’s adverse action features can be customized to accommodate specific state or local requirements regarding background check notices. Employers have the option to customize the sender and recipient names, as well as the body of the message, to meet stricter requirements in certain jurisdictions. Additionally, employers can upload additional documentation or individualized assessments where applicable to ensure compliance with state and local laws.

Are there additional steps or considerations employers should take beyond the pre-adverse and adverse action notice process outlined in the blog post?

In addition to the pre-adverse and adverse action notice process, employers should consider consulting with legal counsel to ensure full compliance with applicable state and local laws regarding background check notices.

Hire Confidently with Certn

If your company isn’t following these procedures, we suggest you work with your legal counsel to update your background screening policies. A reputable background screening vendor like Certn can also help.

Why wait? Schedule a demo today to see how Certn’s knowledgeable compliance experts can be your trusted ally in navigating US hiring and FCRA requirements like the notice process.