Adverse action is a term used when employers, creditors, or lenders are making a negative decision against an individual based on information found on their consumer reports or background checks. Pre-adverse action takes place prior to the adverse action to inform the individual that adverse action is being considered.
Adverse action notices inform the consumer that negative action is being taken due to information on their background checks. If that data is inaccurate, the consumer must be aware of the harm that could cause to their livelihood. The Fair Credit Reporting Act (FCRA) is meant to protect consumers from being denied credit, housing or employment due to false or outdated information on their consumer reports or background checks.
Section 604 of the FCRA specifies when consumer reports can be used and by whom. Adverse action cannot be taken unless the consumer has received a copy of their report and a summary of their rights under the FCRA. When sending this information, the individual is notified via a pre-adverse action letter. Pre-adverse action simply notifies the candidate that a negative decision is being considered. They then have the chance to review their data and dispute any false or outdated information.
To clarify, pre-adverse action is before the negative decision has been made. If the candidate doesn't dispute their data or a reasonable amount of time passes after the pre-adverse action notice has been sent, then the employer can move forward with their decision. After the denial of employment or withdrawal of the employment offer, the candidate is notified with an adverse action notice.
An Adverse Action notice must also include the following:
All that to say, a candidate can still be hired after receiving a pre-adverse notice. If their information is misleading and they can dispute what was used against them, then they still have a chance.
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