Pre-Employment Screening

(What Every Mortgage Broker Should Know)

Each year, about 10 million American consumers fall victim to identity theft, and with low chances of capture and conviction, the trend is increasing. But it isn’t hackers and convicted felons who are responsible. Experts suggest that consumers are more likely to be targeted by employees in offices where they have provided personal information. Now, consider the amount of confidential and privileged information to which each employee involved in the mortgage process has access. The 1003 contains enough personal data to provide an unscrupulous individual with an easy opportunity to commit any number of wrongs, including identity theft and embezzlement.

So how much do you really know about your employees?

Not as much as you should, if you are like most brokers. The statistics are against you.

• Up to 10% of all applicants have criminal convictions 1
• Up to 33% of all resumes contain incomplete or incorrect information
• 70% of employers fail to check personal references on hourly employees
• 42% of employers fail to speak to prior employers/ supervisors
• 52% of employers don’t verify education and professional licenses

Every employer should understand the risks and, increasingly, the liabilities assumed when hiring employees without conducting at least a basic investigation of their history.

Employers can be held financially responsible if an employee harms someone on the job, with average awards in workplace-violence lawsuits exceeding $1,000,000 per case.

Having a background screening policy in place, and providing notice to all applicants of your pre-screening program, provides additional benefits, including:

• Discouraging applicants with something to hide. A person with a criminal record or falsified resume is more likely to apply to a company that does not pre-screen applicants.
• Encouraging applicants to be forthcoming in both the application and subsequent interviews.
• Demonstrating due diligence, which is an important factor in the event of any lawsuit.
• Removing some of the uncertainty in the hiring process. As important as instincts are, basing your decision on hard facts is better. It’s also valuable in making a final decision between two otherwise equally qualified candidates.

Since many states have little or no requirement for conducting background investigation of mortgage staff, the burden (and the potential liability) falls to the employer. Employment pre-screening, while more complicated than simply ordering a credit report, is relatively simple and inexpensive. With costs usually less than one day’s wages of the new hire, the truth is that you can’t afford not to pre-screen.

Loan Officer/Processor Pre-Screening

In addition to the verification of education, employment, and references that is standard with all pre-employment screenings, screenings for applicants for loan officer or processor positions should include a criminal records check, including an InstaCriminal database search and manual county and federal searches. You should also obtain a credit report and verify the Social Security number. You must consequently disclose what you will do and obtain the applicant’s approval.

Because disclosure guidelines are strictly regulated under FCRA section 605.b, compliant notices and disclosures can be the greatest challenge in developing pre-employment screening procedures. Failure to comply with every provision exposes you to either potential due diligence liability if you don’t screen well enough, or liability to the applicant if you don’t appropriately disclose what information will be verified.

Don’t Succumb to Temptation

You cannot run a credit report for employment screening in the same way you would for a mortgage applicant. Doing so would be in violation of FCRA section 604 – permissible purpose. As a lender, your current reporting access is limited to use for mortgage purposes, and places a mortgage-related inquiry on the consumer’s credit report. Pre-employment screenings do not result in an inquiry.

The FCRA also mandates that you protect employment applicants against identity theft and discrimination by omitting risk scores, date of birth, and credit card account numbers from pre-employment credit reports. Requesting a standard credit report could expose you to liability.

Three Layers of Disclosure Notification

Before conducting pre-employment screening, you must provide written notice in a stand-alone form, separate from the application for employment. This notice must contain all levels at which a pre-screen will be done with special authorization for medical, criminal, and credit reports.

If you plan to take any adverse action based on information obtained through the pre-screen reports, you must provide additional disclosure both before and after you act. The Pre-Adverse Action Disclosure must include a copy of the credit report and a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.” After you have decided to proceed, you must inform the candidate through an Adverse Action Notice. The notice must contain specific information, including:

• The name, address, and phone number of the CRA that supplied the report
• A statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give specific reasons for it.
• A notice of the individual’s right to dispute the accuracy or completeness of any information that the agency furnished and to his/her right to an additional free consumer report from the agency upon request, within 60 days from the date of the receipt of the adverse action notice.

Be sure to allow sufficient time between the two notices to let the applicant review the credit report and associated disclosures, and to dispute any seemingly incorrect information.

This information is intended as an overview of the practice of employment pre-screening only and does not constitute legal advice. Please consult your legal or compliance resources before enacting any employment screening process.

1. and 2. hr.com article by Ed Andler and Dara Herbst based on a 2002 survey; and an October 1, 2005, New York Times article by Tom Zeller, Jr.

Also in this Issue

	FICO 08 to Impact 60 Million Consumers
	Cutting Credit Reporting Costs
	What You CANT See is Hurting Your Borrowers FICO Scores
	Mortgage Technology Update
	Ask The Arsenal

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	Pre Employment Screening, Licensing and Background Checks
	Obtaining Court and Tax Records Documents within 48 Hours
	Ask The Arsenal - What to do When The Repositories Say You're Borrower is Deceased