The Fair Credit Reporting Act (FCRA) is a federal law that regulates how consumer credit information is collected, disseminated, and used. It was enacted to ensure the accuracy, fairness, and privacy of information in the files of consumer reporting agencies. When it comes to employment, the FCRA requires employers to take specific actions before they can take any adverse action (such as not hiring, firing, or demoting) based on information in a consumer report.

Step-by-Step Explanation:

Disclosure and Authorization: Before obtaining a consumer report for employment purposes, an employer must disclose to the applicant or employee that they intend to use the information for employment decisions. This disclosure must be in writing and in a standalone document. The employer must also obtain written authorization from the applicant or employee.

Pre-Adverse Action: If an employer decides to take adverse action based on the consumer report, they must first provide the applicant or employee with a copy of the report and a summary of their rights under the FCRA. This gives the individual the opportunity to review the report and dispute any inaccuracies.

Adverse Action Notice: After taking adverse action, the employer must provide the individual with an adverse action notice. This notice must include the name, address, and phone number of the consumer reporting agency that provided the report, a statement that the agency did not make the adverse decision and is not able to explain why the decision was made, and a notice of the individual's right to dispute the accuracy or completeness of the report and to obtain an additional free report from the agency within 60 days.

References:

U.S. Federal Trade Commission (FTC) guidelines on the Fair Credit Reporting Act

SHRM's comprehensive resources on background screening and employment law compliance