Credit Reports For Pre-Employment
Screening - Use With Care
Credit reports are a critical element of the background screening process for many employers. Banking, finance, security, public safety and pharmaceuticals are just a few industries that rely heavily on credit reports for making a hiring decision as an indication of integrity and stability. Consider a candidate for a government position who has defaulted on a government backed student loan or possesses tax liens against them. What about an employee that is granted a company credit card and struggles to manage their own personal credit card within acceptable limits? Although a credit report may give insight into a candidate’s stability and trustworthiness for a specific position, there is no proven correlation to a candidate’s credit score and their ability to perform a job. For that reason, a credit score is not part of an employment credit report. Proper use of a credit report within the hiring decision process is imperative to avoid discrimination and legal liability.
Many consumers are concerned that their credit score will be affected by a potential employer accessing their credit report. An employment credit report does not affect a consumer’s credit score nor is it even listed on the report. In addition, information such as a candidate’s year of birth and specific account number information does not appear on the report, which should help decrease the potential of age discrimination and the potential theft of credit information.
The following is basic information contained within a consumer's employment credit report:
– Information such as complete name, other names, and address history is listed on the report. This information can be used to confirm the consumer’s identity and address history as provided by the candidate, and be used for enhanced criminal records research in all areas where the applicant has lived.
– A listing of the consumer’s creditors, credit balance, high credit, payment history and current trade line status.
– Information such as judgments, tax liens and bankruptcy information may be provided on the report and used within FCRA specific guidelines.
– Additional consumer information such as fraud alerts, identity theft warnings and information provided directly by the consumer explaining extenuating circumstances around their credit history.
The Fair Credit Reporting Act (FCRA) authorizes the use of credit report information for employment purposes. Employers need to follow a few basic best practices when using such information to keep them out of legal hot water:
– Credit reports should be evaluated the same way for every candidate. Establish criteria that provides for a consistent and documented process to avoid any form of discrimination from one candidate to another. Title VII of the Civil Rights Act of 1964 prohibits employers from discriminating against candidates based on race, color national origin, religion, gender, pregnancy, age and disability.
– Company policy and the use of credit reports should be justified by job relatedness. Only access credit reports when there is a specific justification for doing so, and document the reasons why accessing a candidate’s credit report is necessary to be considered on a per position basis.
– A complete picture of a candidate should be considered when making a hiring decision, including all elements of the background screening process. Allow your candidate the opportunity to explain negative information on their credit report, and develop an exception policy around information that should not be considered. Understanding short-term changes to a candidate’s credit history will give you a better picture of how it may or may not affect the candidate being considered for a specific position.
A few states have considered, or passed, legislation that provides specific language around the use of credit reports for employment purposes. Employers need to be sure that their hiring, retention, and promotion practices fall within these guidelines. Below is a sampling of state by state considerations as of March 10, 2010. It is important that you stay current on new developments through your HR legal counsel as state and federal legislation is constantly changing.
- In October of 2009, Governor Schwarzenegger vetoed CA Assembly Bill 943
prohibiting the use of credit reports for employment purposes that are substantially job-related, as defined by the bill or required by law, to protect employers from exposure and potential litigation. This issue has been debated twice within the California legislature and has never made it to law.
- House Bill 5521 (HB5521)
main provisions would prohibit employers from asking prospective employees to consent to obtaining a credit report that included a credit score, account balances, payment history and bank account balances. After much house debate, the legislation failed upon adjournment on June 3, 2009.
- House bill 31(HB31 CD1)
became law on July 15, 2009, overriding Governor Lingle’s veto. This law establishes employer's use of an individual's credit history in hiring and termination decisions as an unlawful discriminatory practice, provided that the individual's credit information directly relates to a bona fide occupational qualification, and that employers expressly permitted to inquire into credit history for employment purposes pursuant to any federal or state law. The following are notable exemptions to the legislation:
1. For the use of managerial and supervisory positions;
2. Certain financial institutions are exempt.
– As of March 29, 2010, Oregon Senate Bill 1045
has been signed by Governor Kulongoski and goes into effect July 1, 2010. This bill places additional restrictions on the use of credit reports, and prevents employers from utilizing credit reports for employment, including hiring, discharge, promotion, and compensation unless the credit report use is "substantially job-related".
1. Employers that are federally insured banks or credit unions;
2. Employers that are required by state or federal law to use Individual credit history for
3. The employment of a public safety officer, or;
4. Employers that can demonstrate that the information in a credit report is “substantially
job-related” AND the employer’s reasons for the use of such information are disclosed to
the employee or prospective employee in writing.
- The state of Washington amended existing legislation with RCW 19.182.020
. An immediate effect of this legislation revolves around the use of amended forms and the ability for WA employers to communicate the reasons that a credit report is substantially related to a particular job. Under this amended Washington Law, employers cannot obtain a credit report as part of a background check unless the information is:
1. Substantially job related and the employer’s reason for the use of such information are
disclosed to the consumer in writing or;
2. Required by law.
Even with only a few states weighing in on the use of credit reports, all current, pending and even vetoed legislation address the critical need for proper use, and the valuable resource it brings to employers. EBI provides this information as awareness to current trends and issues within the background screening industry, but should not be taken as legal advice as it relates to the proper use of credit reports.
The following are additional resources that provide consumers guidance with Federal law and guidelines around credit reports and their rights.
Federal Trade Commission (FTC)
FTC – Consumer Credit Information
Yearly Credit Report Review
At EBI, we understand the critical role that credit reports play for assessing a candidate or even a current employee. EBI offers access to FCRA compliant employment credit reports, and provides authorized and access to a subject’s employment based credit history in a secure and confidential manner. EBI can provide a complete picture of your candidate, confirming the candidate’s true identity, address history, and credit worthiness with our “one stop” background screening solutions.
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All information contained herein is provided by Employment Background Investigations solely for the convenience of its clients. EBI is not providing legal advice or counsel and nothing provided on this document should be deemed as legal guidance or advice. Readers should consult with their own legal counsel to determine their legal responsibilities or if they have questions on any information provided by EBI.