HR Support on Preemployment Credit Checks

Editor's Note: Credit checks typically should only be used if they are job-related or for a legitimate business purpose.

David B. WeisenfeldOverview: 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

Latest items in Credit Checks

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    Type:
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  • GHO-8 - How to Conduct a Credit Check for Employment Purposes

    Type:
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    Employers seeking to run credit checks of potential employees must proceed with caution because good credit requirements can be seen as having a disparate impact on minority job applicants, and several states place limits on the use of credit checks for employment purposes. This How To helps an employer with the steps to determine when to run a credit check during the preemployment process.

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    Type:
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    In-depth review of the spectrum of District of Columbia employment law requirements HR must follow with respect to preemployment screening and testing.

  • Preemployment Screening and Testing: Maryland

    Type:
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    Date:
    29 July 2014
    Type:
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    An employer's use of background checks raises many compliance issues, including the Fair Credit Reporting Act; the state "ban the box" trend that prevent employers from asking criminal history questions on initial job applications; and ensuring background checks do not discriminate against minority job applicants.

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