What Is an Adverse Action as Defined by FCRA?

Your consumer credit report can impact several areas in your life, including your ability to obtain credit on favorable terms. Individuals have experienced difficulties in securing a mortgage or a car loan because of negative marks and information on their credit reports.

Your credit report can affect other areas of your life beyond your housing situation and transportation options. Employers can obtain copies of the credit reports of employees and job applicants, and they can use the information to deny you employment, demote you, or even terminate your employment.

The Fair Credit Reporting Act (FCRA) protects you and other employees against the unfettered use of your credit report in this way.

The FCRA does not prohibit employers from using the information in your credit report to make employment-related decisions. That said, it does provide a procedure to help safeguard you against your employer’s unfair use of inaccurate credit information or FCRA adverse actions.

Suppose you need more confidence about what an adverse action is as defined by FCRA or what adverse employment actions can be taken against you due to the information in your credit report. In that case, a Florida employment rights attorney can help. You may have rights, and your attorney can help you assert them.

What Does the FCRA Do?

The Fair Credit Reporting Act, abbreviated as FCRA, is a federal law passed in 1970 designed to govern how credit bureaus can collect and disclose consumer credit information. The FCRA’s goal is to ensure an accurate picture of each person’s creditworthiness is available and disclosed to authorized individuals when the law permits.

To accomplish these aims, in accordance with the FCRA, the credit bureaus will collect and disseminate information about your credit history with lenders and banks. This information can include your payment history, the ratio of your credit used to your available credit, and how many times you have recently applied for credit.

Information subject to the FCRA also includes adverse actions taken against you. What is an adverse action as defined by FCRA?

The term “adverse action” includes several different actions that can be taken against you by a bank or lender, including the denial of a loan application, revocation of a line of credit, or changes in terms of a loan that are less favorable to you.

While the FCRA’s primary application is in consumer credit and financing, its provisions also touch upon other areas of your life. These provisions can include your relationship with your employer if you are presently employed.

If you are not employed or are looking for work, it can also touch upon your relationship with a potential employer.

The FCRA regulates how consumer credit information is collected, reported, and disseminated to others and provides protections to consumers whose data is unfairly reported or used. These protections can include financial penalties for those who willfully.

What Is an Adverse Action Notice?

What is an adverse action notice in the context of the employment relationship? An adverse action notice is a notification from your employer or potential employer that they have taken an adverse employment action against you due to something discovered in your credit report or background investigation.

Your employer should promptly provide you with an adverse action notice following the adverse employment action. The notice you receive should be oral as well as in a written format. The written notice can be sent in a letter or electronic communication such as an email.

The critical part is receiving the notification in multiple ways, including some tangible format.

In addition to the notification that a potential employer took adverse employment action against you, you should also receive a copy of the credit report that your employer utilized in making its employment decision.

If the employer utilized more than one report to arrive at its decision, a copy of each report should be made available. These reports are to be given to you at no cost.

Finally, an adverse action notice should include a copy of your rights under the FCRA. This list of rights explains the protections offered by the FCRA to dispute inaccurate information you might find in your credit report.

What Is Required on an Adverse Action Notice?

Absent the FCRA, employers who took adverse employment actions against employees would be free to craft whatever notice they desired. If this were permitted, some notices would not be helpful to aggrieved employees and applicants, leaving them in the dark about why the employer did not hire them, demoted them, or fired them.

Worse still, inadequate notices would provide employees with little helpful information.

Thankfully for employees, the FCRA governs what is required on an adverse action notice. These requirements include:

Oral NotIfication of Adverse Employment Action

When your employer makes an adverse decision regarding your job application or employment, the employer must provide you with oral notification. This oral notification is your initial notification that your employer has taken some adverse employment action against you because of something in your credit report.

While the content of this oral notification can be simple, it should provide information about the nature of the adverse action taken against you. When you receive verbal notification, you should expect that you will soon receive a more formal, written notification as well.

Written Notification in an Adverse Action Letter

You may ask, “What is an adverse action letter?” Simply put, an adverse action letter is a formal, written notification from your employer that they have taken some action regarding your application or employment based on something in your credit report.

The requirement that this is in writing is satisfied whether your employer delivers it to you in a letter or an electronic format.

When you receive this written notification, you should review it carefully as it will contain information about the decision and what you can do next. It should detail what your employer did and why your employer took that action against you.

The letter should specifically identify the information in your credit report that it used in making its decision.

This written notification should be accompanied by a free copy of the credit report that your employer used. It is equally important that you review this credit report, especially if you believe the information your employer used is inaccurate or incomplete.

You should also be provided with information about your right to dispute inaccurate information or appeal the decision made against you.

What Is an Example of Adverse Action?

Multiple circumstances serve to answer the question, “What is an example of adverse action?” under the FCRA. Generally, an adverse action is a negative employment action taken against you by an employer or potential employer based on information in your credit report. Common examples include demotion and termination of employment.

Pre-Employment Adverse Actions

A potential employer may take an FCRA adverse action against you even before you are hired. Many employers require potential employees to participate in background checks or credit checks as part of the hiring process. The employer reserves the right to rescind any offer of employment based on the results of such background checks.

Requesting background checks or credit reports as a condition of employment is especially common in career fields requiring access to sensitive information or financial resources. Those in the financial and legal industries, as well as government officers and officials, will commonly encounter this requirement.

When an employer reviews your credit report or background check, they may decline to offer you the job for which you applied. Instead, the employer may provide you with a less desirable position that does not offer the compensation you initially sought. The employer may also decline to extend any employment offer to you.

Adverse Actions During Employment

Employers may continue to conduct periodic background checks and monitor your credit reports even after extending an offer of employment. This monitoring is more likely to occur if your job duties include access to sensitive information or if your loyalty to the company or clients could be compromised.

Terminating your employment is an obvious FCRA adverse action, but there are other steps your employer could take that are still adverse but less drastic.

These possibilities could include passing you over for a promotion for which you are otherwise qualified or demoting you to a lesser position. All of these are examples of adverse employment actions under the FCRA.

What Is an Adverse Action Process?

The FCRA protects you as an employee by requiring your employer to follow a specific process if it intends to take adverse employment action against you.

What is an adverse action process? It is the steps mandated by the FCRA that employers follow when they use a background report or credit report to make employment-related decisions.

First, when an employer considers taking adverse action against a candidate or employee because of a credit report or background check, the employer should provide a pre-adverse action notice.

As the name implies, this document gives you notice of the action contemplated by your employer, the reason for the action, a copy of the credit report or background screen used by the employer in making its decision, and your rights under the FCRA to dispute or challenge information.

The FCRA then requires that you have a reasonable amount of time to review the notice and the background or credit report.

If you discover errors in the report, you have a window of opportunity to provide accurate information to your employer. Similarly, if your report reveals unflattering information, you have a brief period within which you can give clarifying information about the situation to your employer.

The period within which you have to respond is approximately five to seven business days. Your employer should consider any information you present explaining your credit report during this period, but they are not required to change their decision.

Florida Employment Rights Firm Can Assist You

Knowing what an adverse action defined by the FCRA is and what you can do if you are subjected to such an action can be confusing. At Wenzel Fenton Cabassa, P.A., our Florida FCRA attorneys are intimately familiar with the FCRA and the rights given to employees like you.

Even if you are unsure what an adverse action is as defined by the FCRA, if you receive a pre-adverse action notice or an adverse action letter, contact us at Wenzel Fenton Cabassa, P.A. to discuss your legal rights and options.