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Credit Information Use in Employment Decisions Reaches Federal Level

Date Published: October 06, 2014 | Last Updated: September 15, 2023 | By Accurate Background

The debate surrounding credit report use in employment grows louder as more states implement new legislation on the topic. There are now 10 states, including California and Nevada that have put legislation in place to limit the use of credit information for employment. Fines are also being handed down through the FCRA related to the use of credit reports (Up to $2,500 or more in some states). Two recent bills introduced at the federal level are causing employers to evaluate how credit reports are used in their hiring processes. Below is a high level overview of the proposed legislation:

Equal Employment For All Act

Introduced last year by Senator Elizabeth Warren of Massachusetts, this bill looks to amend The Fair Credit Reporting Act to eliminate the use of credit reports in employment decisions against future and current employees. Senator Warren believes that the use of credit reports creates unnecessary obstacles to getting hired and that decisions should only be made based off of skills and qualifications. This bill is currently pending at the federal level.

Exception to the bill: The Equal Employment For All Act does not prohibit the use of credit information in hiring decisions for jobs that require a national security or FDIC clearance.

You can read the full article regarding this bill on the Tahoe Daily Tribune.

Fair Credit Reporting Improvement Act of 2014

California Republican Maxine Walters introduced the Fair Credit Reporting Improvement Act of 2014 on September 10th, 2014. This act looks to help individuals fix their credit reports, which in turn may help individuals get jobs. The main goal of this act is to give relief to individuals who were impacted by mortgage lenders, shorten the time in which negative information remains on a credit report, give individuals the opportunity to fix credit information discrepancies and provide credit score relief to individuals with student loans. One provision of the act also looks to prohibit the use of credit checks when making hiring decisions in fear of long term unemployment due to the recent financial crisis.

You can read the full article regarding this bill on The Washington Post.

Implications for Employers

If the trajectory of recent legislation stays on course, restrictions surrounding credit reports are only going to tighten. Employers must evaluate the purpose of running a credit check on an individual against the risks. Unless the individual will be making large financial decisions on behalf of your organization (think CFO, controller) or you are required to run them to comply with regulations or legislation, running a credit check could put your business at risk of discrimination claims and possible fines within your state or under FCRA. For example, California imposes several requirements on employers and the use of credit checks:

  • The position must be included as one of the acceptable positions listed in the statute
  • The applicant must be provided with written notification that the report may be obtained, along with specific reasons for why the report is being collected
  • The employer must obtain the applicant’s consent prior to requesting the credit report
  • The applicant must be provided with the option to obtain a copy of the report free of charge

Employers nationwide would be well advised to vet their use of credit checks to ensure that a credit report is truly relevant to the position and does not open their organization up to unnecessary risk. In most cases, job-relatedness is hard to prove. For example, an employer may want to look into a potential cashier’s credit because the individual will be handling money. However, determining the individual is not trustworthy to handle money because they have a poor credit score is a risky assumption. It’s not possible to prove that a low credit score correlates to theft and doing so opens the employer up to accusations of unfairly denying employment.

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The information provided in this blog is meant for educational purposes only. It is not intended to be legal advice. Accurate Background recommends that your company consults with its legal department regarding your background screening program to ensure that your policies are compliant with the most current changes in legislation at the state level in addition to the FCRA. You can also find updates on legislation affecting background screening under the Legislative Updates section of our website.