7/3/2015 Court Closures Due to 4th of July Holiday

Background Check Delays for 4th of July

Happy 4th of July!  In observance of Independence Day, all U.S. Courts will be closed on Friday, July 3, 2015.  Employers conducting criminal background checks in the United States will notice delays through the weekend following the holiday as the courts reopen on Monday, July 6th and address the backlog created by the holiday closure.

Have a safe, happy and healthy holiday!

4 Reasons for Employers to Fall in Love with Drug Testing All Over Again

Drug Test

Raise your hand if you remember having to give prospective employees a paper chain of custody form to conduct a drug test, locating the nearest collection center, hoping your candidate showed up to the right place in a reasonable amount of time and prayed the your drug testing lab didn’t lose the sample in transit.

Ahh, the good old days of substance abuse screening.  Thanks to major advances in drug screening technology, times have changed- and rather quickly. The process has become much more efficient for employers and candidates and even better at making sure that nothing slips through the cracks.

1. Throw Out Those Forms

Today’s drug screening technology has made paper chain of custody forms a thing of the past for non-Department of Transportation (DOT) testing. You no longer have to wait for a candidate to pick up their form or waste money over-nighting them. You simply type in your candidate’s address, indicate what type of test you require and automatically see where the nearest collection center is. Push a button and you can schedule the test. The candidate then receives an email with instructions on where to go. Easy, right?

While it took awhile, the Department of Transportation has finally joined the party. As of April 13, 2015, employers can use the electronic process for DOT tests.

Don’t feel like scheduling the test yourself? Most providers allow you to invite your candidates to complete the necessary data entry and schedule the test themselves.

2. Goodbye Stalling Tactics

As many of you know, unless someone is a habitual drug user, most substances are cleared from the body within a matter of days. Often times, candidates that had used drugs would wait a few days until the drugs left their system and then show up for the test. With new technology advances, employers can now create lockout periods where the candidate will be denied the opportunity to provide their specimen if they don’t show up in the specified period of time. Most employers now mandate that the candidate must be tested with 48 hours from the time the appointment is scheduled.

3. Any Day Now

Today, all of the major drug testing labs have developed reliable technology to test urine samples on site. This differs from the recent past, where all specimens had to be shipped to a laboratory to be tested. This created all kinds of problems including extended turnaround time (usually 2-4 days for negative tests), lost shipments and improper paperwork accompanying the specimen. With on-site testing, negative results are available in as little as 15 minutes. Positive tests are still shipped to a laboratory for confirmation and are still subject to delay, but with less than 5% of all tests being positive, this is the rare exception.

4. Information at Your Fingertips

Technology has made it possible to monitor every step throughout the process. Want to know if a candidate has completed their own scheduling or taken a test? Want to run management reports to see what percentage of tests were positive and for what types of drugs? It’s all available now. This doesn’t have to be manually tabulated in a spreadsheet. Any provider worth their salt will offer on-demand reporting and tools to manage things like random testing programs.

In summation, we all used to cringe, both employers and background screening companies when it came to substance abuse testing. Thanks to these and other advances in technology we are all in a better place today to make drug testing another cursory part of the hiring process.

You Had More Questions, We Have More Answers

Webinar FAQ

We had almost 200 questions submitted before, during and after our “You’ve Got Questions, We’ve Got Answers: The NEW Basics of Background Screening” webinar.

We couldn’t get to all of your questions during the webinar, but our panel of background screening experts here at EmployeeScreenIQ compiled the most frequently asked questions we received.

We hope you find the answers to these questions useful as you examine your company’s background screening program.

Are unsolicited credit profiles reliable grounds for declination of an individual’s candidacy for employment?
Unsolicited credit profiles are not reliable grounds for declining an individual’s candidacy for employment. Unsolicited credit profiles are used by insurers and creditors to determine eligibility for their services.  A pre-employment credit report (which does not, by the way, include a credit score) may be reliable grounds for declining a candidate employment when taken in context as one part of a pre-employment background check and weighing other factors such as the nature of the job, the requirements of the position and state and federal law.

What do we do if we find negative information on an applicant’s Facebook page or blog?
Deciding how to proceed with potentially negative information discovered on an applicant’s Facebook page or blog is a complex dilemma. The online information is difficult to prove ownership and accuracy, which makes it a less than preferable reason to exclude an applicant. However, if the information discovered would potentially disqualify a candidate based on well-established hiring criteria, it might be a reason for a potential employer to dismiss an applicant from the candidate pool, so long as it does not conflict with the following criteria: The applicant has made the negative information publicly available and the potential employer has not gathered it illegally, the potential employer does not use the potentially negative information to discriminate on protected grounds, and the potential employer is not violating applicable federal, state, and local laws.

With Ban the Box legislation, what liability do we face if an offer of employment is rescinded due to the background check?
Ban the box legislation refers to the check box on a job application asking applicants if they have a criminal history. The purpose of ban the box is to allow ex-offenders a chance to get past the application stage and increase their job opportunities by nature of not immediately being disqualified based on their disclosure of previous convictions. Ban the box legislation would have impact on a conditional offer of employment, as the legislation focuses on the application and interview process rather than the post-screening process. Ban the box does not create liability in rescinding an offer of employment, but please ensure that you are following proper adverse action procedures if your decision not to hire the applicant is based in part on the consumer report.

How are companies in the financial industry complying with the new FINRA regulations?
Companies need to be aware of the new requirements under FINRA Rule 3110(e), which is effective 7/1/2015. The new rule applies to firms that are hiring candidates that must complete a form U4, and spells out the investigation requirement and also a new verification requirement. The verification requirement must, at a minimum, provide for a national search of reasonably available public records conducted by the firm or a third-party service provider to verify the accuracy and completeness of the information contained in an applicant’s Form U4.”  EmployeeScreenIQ has services that can assist with this.

What state law restrictions exist with respect to pre-adverse and adverse action notices?
Adverse action requirements are mandated by federal law under the Fair Credit Reporting Act. There are no state laws which exist to nullify the requirement of end users to conduct proper adverse action, however there are different requirements for the content of pre-adverse action notices depending on the jurisdiction. For instance, in some jurisdictions an employer is required to disclose the exact reason that the applicant is being denied employment. You should seek assistance from your general counsel to determine if any of these state laws apply to your screening program.

What do I do when an applicant has pending charges that are violent and would remove them from candidacy?
An employer may exclude an applicant based on a pending violent charge, if it does not interfere with federal, state and local laws. Please seek advice from your legal counsel.

Is it legal to ask someone in an initial phone screening if they can pass a drug test and background check?
Based on EEOC guidance, it is recommended to ask these questions further along in the hiring process. Asking this question in the initial phone screen would also violate ban the box laws in many states and local jurisdictions.

If the criminal history question is removed on the job application due to Ban the Box laws, when can we ask?
It is best to ask criminal history questions later in the process.  Many state and local ban the box laws specify asking questions post-interview or after a conditional offer. This allows candidates to be assessed based on their qualifications.

What is the legality of asking criminal questions on employment application in California?
California has banned the box in many cities and statewide for public employers. Check with you legal counsel to ensure state and local compliance.

Can you tell me more about “individualized assessments” and whether they are required by law or statute or merely recommended?
Individualized assessment is a formalized method for an employer to subjectively analyze the applicant’s specific qualifications and how their criminal history may or may not impact their job. Individualized assessment only applies to criminal convictions. The purpose of individualized assessment is to allow the applicant to explain why, despite their criminal history, they should still be considered for employment. Individualized assessment is widely encouraged as a regular practice by the EEOC (Equal Employment Opportunity Commission), but it is not a law. With that being said however, failure to abide by individualized assessment presents opportunity for lawsuits brought on behalf of the EEOC under Title VII on basis of discrimination by nature of disregarding the individual applicant’s circumstances and basing an adverse hiring decision strictly on the conviction itself.

Does a candidate have to authorize and sign for the background check if the company does NOT use a 3rd party vendor?
If, on their own, a potential employer goes directly to the courts and searches for records of a potential employee, they will not need written authorization. If a potential employer calls a previous employer of an applicant to verify only information from the application, written authorization is not required. If the potential employer asks opinion based questions, the background check becomes an Investigative Consumer Report and written authorization is required. It is better to take a conservative approach and seek written authorization for every background check.

Can we use juvenile charges that were adjudicated as an adult against an applicant?
If an individual received a conviction while under age in which they were tried as an adult, you may use the conviction against the applicant. The conviction should be considered in relation to job relatedness using the factors spelled out in the EEOC guidance on the use of criminal history.

What has the industry done to facilitate on-going background checks on current employees pursuant to FINRA rule 3110(e)?
Your screening provider should be able to set up a program to suit your needs. See FINRA question above.

What conditions support random drug testing and how is my company protected when choosing to do random testing?
Your background screening provider should have tools and options available for random screening. Check with you legal counsel when setting up a random drug screening program to ensure compliance.

EmployeeScreenIQ Becomes a Member of the Consumer Data Industry Association (CDIA)

CLEVELAND, June 25, 2015 /PRNewswire/ —  EmployeeScreenIQ (www.employeescreen.com), a global provider of employment background screening services announces that it has joined the Consumer Data Industry Association (CDIA),  an international trade association which strives to educate consumers, media, legislators and regulators about the benefits of the responsible use of consumer data, as a Specialized Reporting Member.

Drugs and the Workplace: An Expensive Problem


$81 billion. That’s how much the National Council on Alcoholism and Drug Dependence Inc. (NCADD) says drug abuse costs employers annually. This staggering number covers lost productivity, absenteeism, injuries, fatalities, theft and low employee morale, to an increase in health care, legal liabilities and workers’ compensation costs.

In addition, NCADD reports that drug abuse can cause problems at work including:

  • After-effects of substance use (withdrawal) affecting job performance.
  • Preoccupation with obtaining and using substances while at work, interfering with attention and concentration.
  • Illegal activities at work including selling illegal drugs to other employees.
  • Psychological or stress-related effects due to drug use by a family member, friend or co-worker that affects another person’s job performance.

The Quest Diagnostics Drug Testing Index, published in 2014, shows the percentage of American workers testing positive for illicit drugs has increased for the second consecutive year in the general U.S. workforce. The positivity rate for approximately 6.6 million urine drug tests in the general U.S. workforce increased overall by 9.3 percent, while overall positivity rate for oral fluid and hair drug tests, representing approximately 1.1 million tests, increased between 2013 and 2014 in the general U.S. workforce.

With 70 percent of the estimated 14.8 million Americans who use illegal drugs being employed and the marijuana legalization trend showing no signs of slowing (23 states and Washington D.C. have legalized marijuana in some form), it’s time for employers to prepare for and address the expensive impacts of these trends.

So, what can employers do?

The straightforward solution is to promote and maintain a drug-free workplace. Employers with successful drug-free workplace programs report improvements in morale and productivity, decreases in theft, accidents, downtime, absenteeism, turnover and theft. They also report better health status among employees and family members and decreased use of medical benefits by these same groups.

Ensure your substance abuse screening process is streamlined by working with EmployeeScreenIQ. We protect your organization throughout the entire process with same-day results, electronic scheduling, scheduling services, site mapping, on-site testing, random testing management tools and more. Check out our full list of services by heading over to the Substance Abuse Screening page.

5 Legal Lessons for Millennial Background Checks


By the end of 2015, Millennials are expected to outnumber Baby Boomers in the workplace for the first time ever. As the largest generational group in the job pool (depending on your source, people born 1982-2004), they’re a hot commodity. Up until now, most of the focus has been on how to woo them, lure them in and make them so happy that they want to work for you forever (or at least for a few years).  But employers are finding that it’s not all smooth sailing.  Hiring this growing generation of workers introduces a whole new set of legal challenges to the HR department, and the background screening process is one of those challenges.

When it comes to screening Millennials, employers need to take into account not only what’s effective, but also what’s legal. Wait a minute. I know what you’re thinking. How is a Millennial’s background check different from any other background check? Read on to learn how to spot the tricky issues and avoid a legal tangle with this new wave of workers.

1. Social Media Searches

We know that Millennials love their social networks. In fact, social media in many ways defines this generation. Many have grown up with Facebook accounts and can’t remember a world without the Internet or even without Twitter. They chronicle their lives on Instagram. But that familiarity can cut both ways.  Some say Millennials share too freely and fail to appreciate the impact that social media posts can have on their careers. The oversharing can be tempting for hiring managers who are eager to tap into the wealth of online information.

Jumping into social media as a way to screen job candidate can be a risky proposition. Personal social sites are not always privacy protected, so they are often readily available through a simple search on your candidate. Here is the problem—the information you find might not be legal to use in a hiring context. Information about a candidate’s religious affiliation, national origin, sexual orientation, marital status or health condition may all be prohibited under state and federal anti-discrimination laws. Moreover, Millennials appear to reflect more cultural diversity than Gen X or Baby Boomers. For example, 42 percent identify with a race or ethnicity other than non-Hispanic white.

The inherent legal risks associated with social media searches are not unique to Millennials, but because of their diverse make up and propensity to share, employers are more likely to stumble upon protected class information that could get them into hot water.  Employers need to make sure that any social media screening is done by those who are familiar with the legal risks—particularly anti-discrimination and privacy laws.

2. Digital Natives and Age Discrimination

Millennials, currently under the age of 33, are not direct targets for age discrimination. But here’s the rub–the hiring criteria you are using to attract Millennials might be at the expense of those older 40 somethings who are protected by the Age Discrimination in Employment Act (ADEA) and other similar state laws.

A Fortune article on this topic recalled a famous quote from Mark Zuckerberg: “Young people are just smarter.” In 2013, Facebook settled a lawsuit with California’s Fair Employment and Housing Department for posting an employment ad that stated “Class of 2007 or 2008 preferred.” You get the idea.

Another example is the term “digital native.” It’s the new code for a recent graduate and it’s popping up in ads where companies are looking for a person who was born and raised in the digital age. In other words, Millennials. Legal experts agree that pre-screening for digital natives is a form of thinly veiled age discrimination. Instead of screening for digital natives, identify the real job requirements needed for the position. If you want someone who is very skilled in tech and comfortable in the digital environment, those are the words you should probably use. Chances are, lots of people in their 20s and early 30s will be qualified and respond.

3. Driving Records

Apparently Millennials don’t like to drive. According to AARP, Millennials drive around 25 percent less than their counterparts did just eight years ago. If a licensed driver with a clean driving record is your target, you might actually be eliminating a significant number of prospective Millennial applicants. That might not be a big deal, but like all parts of a pre-employment background check, you want to make sure that the information you are seeking is relevant to the job at hand.

Before you run a motor vehicle report (MVR) on an applicant, you should be asking yourself why. Is a clean driving record a bona fide job requirement? Some employers want to check MVRs for reasons other than driving on the job—things like DUI type offenses, or to get a more complete picture of the candidate. Requiring a driver’s license or running a motor vehicle check would not rise to the level of discrimination, per se, but you could be limiting your job pool in the 20-30 year old market.

4. Credit:

Millennials, more than any other generation, tend to rely less on traditional bank loans and credit cards. They are more likely to use cash, and as a group they actually spend less than Gen X or Baby Boomers. They tend to borrow less, which some experts think is related to their large amount of student loan debt.  The term of art here is “underbanked.” Individuals who are underbanked have little or no credit history. If a credit report is one of your job requirements, you can expect to get little or no information about unbanked Millennials.

Credit is already a slippery slope, with many states prohibiting use of credit for pre-employment screening. But for financial institutions and positions with fiduciary responsibilities, the gap in credit information could significantly impact your ability to hire an otherwise qualified candidate. In any case, credit information is already a sensitive topic for many job candidates. It could be even touchier for Millennials.

5. Job History and Verifications

Millennials job hop. According to Data Facts blog, “a whopping 91% of them don’t expect to stay at a job for longer than 3 years”.  They are mobile, more like to move to large urban areas and are less motivated by pay. Their priorities are different from those who came before them and will move on in order to find more meaningful work.  Moreover, according to a recent federal study, millennials are less likely to have worked during school. That means they are more likely to be coming out of college without a work history.

All of this leaves a prospective employer with less to work with in terms of reference checking and verifications. As a result, screening for job history, applied skills and experience might be more challenging than in the past.  Employers might need to get more creative when it comes to evaluating and screening for work experience. One possible solution is expanding the scope of inquiry to include volunteer experience and potentially personal references.  But note that the use of personal references and investigative reports may also necessitate additional notices and further legal compliance under the Fair Credit Reporting Act.


Millennials are just at the beginning of their careers, and as the largest generation in the U.S. (representing 1/3 of the population) they will continue to have a lasting impact on the job market and the economy.  Coming of age during the Great Recession has had an impact on how they approach work and career paths. As Millennials struggle to find a place in the labor market, employers should be aware of the legal challenges and different approaches to screening this generation of job applicants.  These five legal lessons should provide a good starting place for making your screening program more compliant and Millennial-friendly.

Nevada Removes 7 Year Limit on Criminal Records


Conducting employment background checks in the Nevada just got a little easier. The state has expanded the scope for pre-employment criminal background checks, lifting a 7-year reporting limit on criminal convictions. Nevada Senate Bill 409 was signed by Governor Sandoval last week. The law takes effect immediately. Under the new law, background screening companies are now able to report convictions older than 7 years in Nevada.

Additionally, SB 409 specifically allows gaming operators and employers to conduct more thorough background checks on prospective employees, allowing screening companies to prepare a report at the request of the gaming licensee which may include bankruptcy information older than 10 years and other civil judgments older than 7 years.

The state law is now comparable to the federal law (the Fair Credit Reporting Act) which places no limitation on reporting criminal records that result in a conviction. Employers conducting criminal background checks in Nevada now have the ability to see older conviction records, depending upon availability at the courts.  Employers who are updating their hiring policies are urged to consider EEOC guidance which recommends careful consideration of the age of a criminal offense in relation to the job before disqualifying a candidate based on a conviction.

The full text of Nevada SB 409 is here.

Counting to Five in the Adverse Action Process


The adverse action process for background checks has been in the spotlight lately, thanks to a growing list of class action lawsuits against employers. In some recent cases, those lawsuits have resulted in multi-million dollar verdicts. Others are still winding their way through the court system, with employers defending their practices and filing motions in an attempt to dismiss some of the more far-reaching claims.

Case in point: Moore v. Rite Aid Headquarters, in the District Court for the Eastern District of Pennsylvania. This case has the full menu of Fair Credit Reporting Act (FCRA) allegations, including a claim that Rite Aid rejected Kyra Moore’s bid for employment without following the proper adverse action process.  Rite Aid filed a motion to dismiss the adverse action claim which the court recently denied.  You can read the court’s opinion here. While this ruling is limited in scope–it allows the Plaintiff to go forward but it’s not a final ruling on the issue–it’s still worth noting as it differs from conventional wisdom. The decision was based in part on Plaintiff’s allegations surrounding the timing of the pre-adverse and adverse action notices, and has set off an alarm for those of us who deal with adverse action on a regular basis.

What is adverse action?

For those readers who are uninitiated in the finer points of the FCRA, it’s the federal law that regulates the background screening process. The background screening bible, if you will. The FCRA requires a two-part notification process when an applicant is disqualified because of something on the background check. The initial, or pre-adverse notice, must be sent prior to making a final hiring decision. This initial notice has to include a copy of the report, thus giving the applicant a chance to dispute the findings of the background check. A second notice must be sent after the final decision not to hire, again spelling out the applicant’ rights under the law.

Moore’s claim: insufficient adverse action notice

The adverse action notices in Moore’s case were sent out by Rite Aid’s background screening provider–a perfectly legit way to handle adverse action. But Moore argues that because of the way the process was initiated and executed, Rite Aid did not allow her sufficient time to respond.

Moore claims that, contrary to the wording of the notice in the initial letter, Rite Aid did not provide her with a full five business days from receipt of the initial notice letter to dispute the report. The court bought this argument, ruling against Rite Aid and causing a jolt for the company and other employers that have a five day adverse action policy.

Why was the court’s decision on the timing of the letters a wake-up call for some of us? The surprising point is the notion that Rite Aid’s policy of sending the second notice five business days after the initial notice is sent might not be sufficient.  The complaint says that the initial Rite Aid notice informed Plaintiff that she had five business days from the receipt of that letter to provide Rite Aid with additional information before Rite Aid would take action. Plaintiff alleges, however, that it was Rite Aid’s policy for its provider to print and mail the final adverse action notice on Rite Aid’s behalf five business days after mailing the initial notice letter.

How the Plaintiff counted to five

Are you still with me?  To break it down, Plaintiff claims that her initial notice letter was mailed on April 25, 2011, and she received it shortly thereafter. The final adverse action letter denying plaintiff employment with Rite Aid was printed and mailed on May 2, 2011. Assuming her dates are correct and looking at the calendar, May 2, 2011 would be five business days after the date the initial notice letter was sent, but at most four business days from plaintiff’s receipt of the initial notice letter. Because it would take at least one day for the initial notice letter to reach an applicant via mail, she claims that she never had the full five business days to respond before the final adverse action notice denying them employment was mailed.

What it all means

The court said, based on Moore’s timeline, she has enough juice to move ahead with this claim. While this ruling is not an actual ruling on the issue, it is enough to make a case for reevaluating the timing of your adverse action notices. Many companies have long relied on the five day rule for adverse action notices. And many companies have a policy that starts the five day clock running from the date the initial letter is sent—not the date the letter is received. In fact, absent a certified mail receipt or some other form of verification, employers would have no way of even knowing when the initial notice letter is received.

The bottom line:

Take a look at your adverse action program. Now is a great time to reevaluate, regardless of how the case is ultimately decided.

  • Consider extending the notice period. Many clients use ten business days in order to give the applicant more time to evaluate and respond.
  • If you want to stick to a five day waiting rule for the second notice letter, and if you start counting on the date the initial notice is mailed, consider building in a few extra days to allow for receipt of the letter by the applicant. While a certified letter might be expensive and cumbersome, for some employers that might also be an option.
  • Look at the wording of your notices. Are you accurately explaining the process? Don’t promise what you can’t deliver. Here, the wording specified that the applicant would have five days from the receipt of the letter, which the court relied on in allowing the case to move forward.
  • If you use a screening partner for adverse action, now is a good to review the process with your provider. Screening companies can send the letters on your behalf, but ultimately you as the employer are on the hook for the contents of the letters and process.
  • Consult with your legal counsel for legal advice on this topic and reach out to background screening experts to ensure that your process is compliant.

New FINRA Rule on Background Checks



FINRA (the Financial Industry Regulatory Authority) has issued a rule change for background screening requirements that goes into effect on July 1, 2015. FINRA Rule 3110(e) is based on similar provisions in NASD Rule 3010(e) and NYSE Rule 345.11. For those of us who are acronym challenged, that’s the National Association of Securities Dealers and the New York Stock Exchange, respectively.

In short, FINRA Rule 3110(e) lays out the specifics of what is required for a background check on U4 applicants. The new rule walks through the investigation and verification requirements for information in the Form U4 (Uniform Application for Securities Industry Registration or Transfer). Significantly, the rule introduces a new requirement to search national public records in order to verify U4 information. The full text of the rule and an executive summary can be found here.  Here is an overview of what you need to know.

Investigation Requirement

The threshold requirement under 3110(e) is that “each member firm ascertain by investigation the good character, business reputation, qualifications and experience of an applicant before the firm applies to register that applicant with FINRA and before making a representation to that effect on the application for registration.” While it does not dictate a specific process, the reg gives the following guidance:

  • Firms are required to complete the investigation process prior to filing the Form U4.
  • FINRA does not place any limits on the scope of such a background investigation—a firm must obtain all the necessary information to make an evaluation.
  • Firms should consider all available information gathered in the pre-registration process for this purpose, including, but not limited to, Form U4 and Form U5, responses, authorized searches of the CRD system, fingerprint results obtained under SEA Rule 17f-2 and communications with previous employers.
  • Firms also may wish to consider private background checks, credit reports and reference letters for this purpose, provided that firms ensure that the background investigations are conducted in accordance with all applicable laws, rules and regulations, including federal and state requirements, and that all necessary approvals, consents and authorizations have been obtained.
  • FINRA Rule 3110(e) clarifies that a firm is required to review a copy of an applicant’s most recent Form U5 if the applicant previously has been registered with FINRA or another self-regulatory organization including amendments.

Verification Process and Public Record Requirement

FINRA Rule 3110(e) requires “that a firm adopt written procedures reasonably designed to verify the accuracy and completeness of the information contained in an applicant’s Form U4 by no later than 30 calendar days after an initial or a transfer Form U4 is filed with FINRA.”

A few of the finer points:

  • If a firm becomes aware of any discrepancies as a result of the verification process after the filing of the Form U4, the firm is required to file an amended Form U4.
  • While FINRA notes that firms are encouraged to complete the verification prior to filing, it provides the 30 day window and allows for unplanned delays as a means for firms to quickly fill open positions and manage hiring needs.
  • If an applicant is already registered with a firm and is transferring to an affiliate, the firm only needs to verify new information on the U4—there’s no requirement to verify historic information.

The New Twist: “Reasonably Available” National Public Record

Here is the new twist: a firm’s verification process “must, at a minimum, provide for a national search of reasonably available public records conducted by the firm or a third-party service provider to verify the accuracy and completeness of the information contained in an applicant’s Form U4.”

FINRA defines public records to include general information, such as name and address of individuals, criminal records, bankruptcy records, civil litigations and judgments, liens, and business records. Since 3110(e) requires that a firm search only “reasonably available” national public records, it clarifies that, at a minimum, such records include criminal records, and bankruptcy records, judgments and liens.

The rule acknowledges that what is “reasonably available” might change over time, and that a firm may find it necessary to conduct a more in-depth search of public records depending on the applicant’s job function, responsibilities or position at the firm. Notably, FINRA says that the public records search requirement does not require a credit report, which contains both public and non-public records, but says a credit report might be just one of several means by which to obtain the information. Other suggested means include obtaining a report from a third party background screening provider containing criminal and financial information, and accessing various database resources.

The Bottom Line

  • Firms subject to regulation by FINRA need to review their investigation policies and practices for U4 applications.
  • Written policies need to reflect a compliant investigation process.
  • Effective July 1, 2015 that process needs to include verification by using reasonably available public record information.

This is a great time to review your screening program. Check with your background screening provider to review your options for conducting a compliant verification process under the new rules, and consult with your counsel for legal advice.

Questions for FINRA regarding the notice and the new rule can go to Afshin Atabaki, Associate General Counsel, Office of General Counsel, at (202) 728-8071 or afshin.atabaki@finra.org.