As the new year begins, the use of credit reports for employment purposes is once again in the spotlight.
On January 1st, the Illinois Employee Credit Privacy Act (HB 4658) became law. Illinois is now the fourth state to restrict employers from using credit information for employment decisions; Hawaii, Oregon, and Washington have similar legislation in place.
The law states that Illinois employers and agents of employers may not “discriminate against an individual with respect to employment, compensation, or a term, condition, or privilege of employment because of the individual’s credit history or credit report” or “order or obtain an applicant’s or employee’s credit report from a consumer reporting agency.”
The concern of how organizations are using employer credit reports within the hiring process is further emphasized by the December 21, 2010, U.S. Equal Employment Opportunity Commission (EEOC) lawsuit filed against Cleveland based Kaplan Higher Education Corporation. The lawsuit states that the use of the job applicant’s credit history by Kaplan was discriminatory. The EEOC further claimed: “This practice has an unlawful discriminatory impact because of race and is neither job-related nor justified by business necessity.”
For many employers, credit reports continue to be an important element of background screening. 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. 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.
The Fair Credit Reporting Act (FCRA) authorizes the use of credit report information for employment purposes, but the proper use of this information within the hiring decision process is imperative to avoid discrimination and legal liability. As best practice, employers should always review credit report information on an individual basis, per applicant, and only as it relates directly to the specific job function.