Overview: One potential type of employee background check is the credit check. The Fair Credit Reporting Act (FCRA) governs the use of consumer credit reports as well as investigative consumer reports for employment purposes. Under the FCRA, an employer must notify job applicants and employees and obtain their written consent before any credit check is conducted.
Federal law does not otherwise prohibit credit checks. However, the EEOC maintains that inquiries into an applicant's current assets, liabilities or credit rating (including bankruptcies or wage garnishments) generally should be avoided because they may have a disparate impact on minorities and women under Title VII of the Civil Rights Act.
An employer's safest course is to limit their use of credit checks to situations where they have a legitimate business reason for requesting the information. For instance, this may include positions involving financial responsibilities or handling sensitive data.
Trends: Some states, including California, Oregon, Washington, Illinois, Connecticut, Maryland, Vermont and Hawaii, have gone beyond federal law in placing limitations on the use of credit checks for employment purposes. Similar legislation has been proposed elsewhere.
Author: David B. Weisenfeld, JD, Legal Editor
The EEOC and the FTC have teamed up to create new resources relating to the use of background checks for employment purposes.
A pair of new employment laws in Nevada take effect October 1, and include strict restrictions on the use of credit checks for employment purposes plus employer access to private social media accounts.
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In-depth review of the spectrum of Washington employment law requirements HR must follow with respect to preemployment screening and testing.
The Nevada Preemployment Screening and Testing, Employment Offer, Negligent Hiring and Privacy sections of the Employment Law Manual have been updated to reflect a new law, effective October 1, 2013, that bans employers from using credit checks for employment purposes with limited exceptions.
Nevada will soon become the 10th state to prohibit employers from using credit information for employment purposes. The new law takes effect October 1, 2013, and will make it illegal for any employer in the state to require or even suggest that a job applicant or employee submit to a credit check.
The Fair Credit Reporting Act does not prevent an employer from conducting third-party credit checks so long as the employer obtains the applicant's written consent and complies with the FCRA's notice requirements. However, some states have gone beyond federal law and placed restrictions on when employers can conduct credit checks of job applicants or employees for screening purposes to certain types of positions.
In-depth review of the spectrum of Oregon employment law requirements HR must follow with respect to interviewing and selecting job candidates.
HR guidance on using credit checks legally and fairly with job applicants in compliance with the FCRA.