Using Credit and Consumer Reports to Protect Your Small Business Interests
by Caron_Beesley, Community Moderator
- Created: May 12, 2009, 7:05 am
Background information checks are a critical tool
that many small business owners can use to evaluate and exercise due
diligence before they engage in a business relationship - with
customers, clients and even potential employees.
One of the
key background checks employed in the United States is the consumer
report (also referred to as a consumer credit report), which contains
information about an individual’s personal and credit characteristics,
character, general reputation, and lifestyle.
Why Use Consumer Reports?
Whether you are an employer looking to conduct pre-employment checks,
a landlord needing to assess prospective tenants, or you operate a
diligent sales organization that extends credit to customers, you may
need to turn to consumer reporting agencies (CRAs) to help evaluate
individuals with whom you are about to engage in a business
While consumer reports are not the be all and
end all in terms of character or business references, they can provide
insight and suggest potential 'red flags' that may make you more
diligent in your pre-screening process.
The government has put
strict guidelines in place - designed to protect the privacy of the
individual - that dictate how businesses should use, disseminate, and
dispose of the information contained in consumer reports.
small business owner, it’s worth taking the time to understand what
consumer reports are available to help you protect your interests and
assets - while operating within consumer protection law.
Using Consumer Reports - What You Need to Know
you seek access to consumer information from a consumer reporting
agency you will need to observe your responsibilities under the Fair Credit Reporting Act.
this Act, each CRA must notify you of your obligations but it’s worth
understanding in advance what you can and cannot do with the
information that they provide.
Below is an overview of what
you need to know about using consumer reports for your particular
business need. To understand what you must do to comply with the Fair
- Using Consumer Reports for Pre-Employment Screening
- According to the Federal Trade Commission, as an employer, you may
use consumer reports when you hire new employees and when you evaluate
employees for promotion, reassignment, and retention - as long as you
comply with the Fair Credit Reporting Act (FCRA).
often do background checks on applicants and get consumer reports
during their employment. Some employers only want an applicant's or
employee's credit payment records; others want driving records and
criminal histories. For sensitive positions, it's not unusual for
employers to order investigative consumer reports - reports that
include interviews with an applicant's or employee's friends,
neighbors, and associates. All of these types of reports are consumer
reports if they are obtained from a CRA.
- Using Consumer Reports for Screening Potential Tenants
- Landlords can use consumer reports to evaluate rental applications -
as long as they adhere to the Fair Credit Reporting Act. The Act
requires landlords who deny a lease based on information in the
applicant's consumer report to provide the applicant with an 'adverse
action notice.' The Federal Trade Commission explains how consumer
reports can be used by landlords and offers clear guidelines for how to
comply with the Fair Credit Reporting Act provisions here.
- Using Consumer Reports for Underwriting Insurance Policies
- As an insurer, you may use consumer reports to underwrite insurance
policies and to screen high-risk applicants - as long as you comply
with the Fair Credit Reporting Act.These requirements can be found here.
- Providing Information to Consumer Reporting Agencies - If you provide information about an individual to a consumer reporting agency, there are rules and guidelines
governing the accuracy of the information you provide them. Consumers
do have the right to register a dispute with a CRA if they doubt the
accuracy of the information you may have provided about them. If you
furnish information to a CRA, your responsibilities within the law are
explained by the Federal Trade Commission here.
- Disposing of Consumer Credit Information
- With identity theft and fraud on the rise, a new 'Disposal Rule' has
been introduced to govern the proper disposal of information in
consumer reports and records. Learn how to comply with this rule here.
If you have questions about using consumer reports you can contact the Federal Trade Commission directly here.
- Business Privacy Laws (on Business.gov) explains which privacy laws apply to your business and how to comply with them.
- Pre-Employment Checks (on Business.gov) explains the use of personal information, such as credit reports, used in background screening.
- Protecting Financial Information (FTC) provides education and guidance to help financial companies comply with the Safeguard Rule.
- Federal Trade Commission Bureau of Consumer Protection (FTC) works for the consumer to prevent fraud, deception, and unfair business practices in the marketplace.
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