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Background Checks as Big Business, But How Accurate are They?

Posted in Human Resources (HR) Compliance

BusinessWeek has an in-depth article this week on business checks and the accuracy of those records.  Its a thought-provoking article that suggests that background checks are a "Wild Wild West" where nothing is regulated.  Moreover, despite the headline that question the accuracy of background checks, the article itself doesn’t contain any statistics or studies to show that. Rather, they use anecdotes to make the point.

But when you look at the article, I was struck by one paragraph that’s buried deep in text:

The company [ChoicePoint] conducts 10 million background checks annually and estimates it has about 20% of the U.S. market. "The number of complaints vs. transactions is very low," says Katherine Bryant, vice-president for consumer advocacy. The [Federal Trade Commission] has logged 695 complaints against ChoicePoint since 2005, some of which related to [a single] identity-theft episode.

So, for those doing math at home,and if these numbers are to be trusted, there is a 0.000023 percent complaint rate over the last three years filed with the Federal Trade Commission for background checks conducted by ChoicePoint.  That doesn’t strike me as a huge issue whatsoever.

Are there issues with faulty records on some? Absolutely.  But the numbers presented in this article hardly suggests a rampant problem with background checks.

And as for the contention that background checks are fairly unregulated, that’s an overstatement as well.

For employers, following the Federal Fair Credit Reporting Act  is an important  part of avoiding liability for background checks.

As its core and very broadly, the FCRA imposes three general requirements on a company that seeks to obtain and use a background check (known as a "consumer report") for employment purposes: 

(1) the company procuring the report must make certain disclosures to, and obtain authorization from, the job applicant;
(2) the company must make certain representations to the consumer reporting agency from which the report is procured; and, 
(3) the company that uses that report for employment purposes must make certain disclosures to the applicant both before and after taking any adverse action against the applicant based on the report.

I’ve discussed these requirements further in a prior post available here

The Federal Trade Commission, the government agency responsible for oversight of this law, has a good primer on the subject for employers. 

  • http://www.employeescreen.com Jason Morris

    I agree with your assessment. The Business Week article author was misinformed on a lot of fronts. The industry is a lot more regulated today than in previous years. This regulation is largely due to the screening national association, NAPBS. The National Association of Professional Background Screeners is even launching a certification program in the coming months. This, on top of the FCRA and other State laws regulates this industry pretty well. The error rate is very low as seen with the Choicepoint statistics above. I plan on further commenting on our company blog, http://blog.employeescreen.com
    Best,
    Jason Morris

  • http://welterlaw.com/blog/ Eric Welter

    I defended an FCRA lawsuit about ten years ago on behalf of a private employer in Washington, D.C. The background check company, a national credit reporting company, made a mistake in reporting a criminal conviction as part of the background check. The employer refused to hire the employee as a result. In the resulting litigation, there were numerous defendants, including obviously the employer and the credit reporting company.
    What should have been a relatively small matter and simple situation to resolve resulted in years of litigation. At the plaintiff’s deposition (which lasted 27 days) there were at least 15 lawyers given the number of defendants (creatively) brought into the lawsuit.
    The employer in this case had made a relatively minor mistake in complying with the FCRA. But that simple mistake resulted in years of litigation. I would suggest that employers actually read the contract they sign with the company doing background checks to see who bears responsibility under the contract for mistakes.