In Depth May 29, 2008, 5:00PM EST

The Trouble with Background Checks

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LURING CONSUMERS

Today, ChoicePoint bills itself as the gold standard in screening. "The big issue for us is making sure we're doing things as accurately as possible," says Bill Whitford, a senior vice-president. The company 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 FTC has logged 695 complaints against ChoicePoint since 2005, some of which related to the identity-theft episode. USIS had the second-highest total, with 89.

ChoicePoint now is trying to draw consumers as clients. It sells a preemployment self-check to people who want a preview of what an employer would learn about them. These reports cost from $24.95 to as much as $75, depending on how customized they are. Savvy consumers can save themselves some money: Under federal law, individuals are entitled to a copy of any background report compiled by a screening company for a minimal fee, generally $10 or less.

Along with price, screening firms compete on speed. HRPLUS, in Evergreen, Colo., offers five reference interviews within 72 hours. At Employment Background Investigations, a whiteboard hanging on a cubicle wall recently celebrated the clearing of 1,025 applicants in one week by a group of about two dozen screeners, a company record.

Screening firms say their services are vital. In many industries, they argue, employers don't seek prosecution of minor infractions but are willing to report them to employment databases. USIS says its retail records have identified more than 30,000 applicants with histories of theft in just the past few years. All theft reports are re-verified with the employer that submitted them before being shared with an inquiring company, USIS says. But mistakes occur, and once a worker is flagged, it can be nearly impossible to work again in retail.

Two screening companies got it wrong in the case of Ingrid Morales. In 2001, Morales, then 26, was fired after only a month as a makeup artist at a Saks Fifth Avenue (SKS) store in Boca Raton, Fla. Saks cited a report supplied by a retail database, now owned by USIS, and a smaller Florida screening firm, Merchants Security Exchange. The screeners said she had been terminated from a Burdines department store in 1995 for "unauthorized taking of merchandise" valued in the hundreds of dollars. Morales denied the theft allegations. But it wasn't until she sued Burdines and the screening firms in federal court later in 2001 that the information was corrected. USIS deleted the negative reference, and Merchants Security changed her file so that it noted merely a company "policy violation" in connection with her use of an employee-discount card.

A judge dismissed her suit in 2003, ruling that she had not been defamed by Burdines, a part of what is now Macy's, and that the screening firms hadn't violated the law. A spokesman for MAF Background Screening, previously known as Merchants Security, says that "mistakes do happen" and that the Morales case illustrates why applicants should review their background reports. USIS and Macy's decline to comment.

Morales, now 33 and the mother of three children, says that her firing and inability to find work again at store cosmetics counters put her family in a financial bind for several years. Her husband's construction business has since taken off, and she helps manage it from home. But she's still bitter about the background report. "It ruined my whole career, and I felt very humiliated," she says. "They can put whatever they want in your file, and you can't get work."

Terhune is a senior writer for BusinessWeek based in Florida.