Eight States Now Regulate Employment-Related Credit Checks
Vermont recently became the eighth state to restrict the use of credit checks in employment, following California, Connecticut, Hawaii, Illinois, Maryland, Oregon and Washington. More than a dozen additional states and the District of Columbia are considering similar legislation. Observers expect the Equal Employment Opportunity Commission (EEOC) to issue new guidance on the matter.
These new and proposed laws are a reaction to what is seen as the increasing number of organizations using credit-related information in employment decisions, especially in hiring decisions. A 2010 survey by the Society for Human Resource Management found that 60% of employers conducted background credit checks for at least some job candidates. Of those employers, 22% required the checks for all candidates. Employers most commonly ran credit checks on applicants for jobs with fiduciary or financial responsibilities.
The federal Fair Credit Reporting Act (FCRA) sets the limits for the use of credit reports in employment, unless a state has enacted a more restrictive law. The FCRA requires employers to give notice and obtain consent before requesting credit reports and to give employees and applicants copies of the reports when using them to make adverse employment decisions.
Employers running background credit checks may also risk engaging in disparate-impact discrimination, even when the background checks themselves are otherwise permitted. According to the EEOC guidelines, background credit checks tend to have a more adverse impact on minorities and females. Exceptions exist "if the employer can show that such information is essential to the particular job in question.”
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