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

  • Preemployment Screening and Testing: Washington

    Type:
    Employment Law Manual

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

  • Interviewing and Selecting Job Candidates: Oregon

    Type:
    Employment Law Manual

    In-depth review of the spectrum of Oregon employment law requirements HR must follow with respect to interviewing and selecting job candidates.

  • Preemployment Screening and Testing: Oregon

    Type:
    Employment Law Manual

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

  • Preemployment Screening and Testing: California

    Type:
    Employment Law Manual

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

  • Preemployment Screening and Testing: Colorado

    Type:
    Employment Law Manual

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

  • Interviewing and Selecting Job Candidates: Connecticut

    Type:
    Employment Law Manual

    In-depth review of the spectrum of Connecticut employment law requirements HR must follow in respect to interviewing and selecting job candidates.

  • Podcast: What Global Employers Need to Know About Background Checks

    Date:
    September 9, 2015
    Type:
    Editor's Choice

    Restrictions on background checks can vary significantly between other countries and the US. On this podcast, we examine key differences about which employers need to know with Proskauer Rose attorney Erika Collins, who co-chairs the firm's labor and employment practice group.

  • Preemployment Screening and Testing: District of Columbia

    Type:
    Employment Law Manual

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

  • Date:
    May 26, 2015
    Type:
    Legal Timetable

  • Credit Check Limitations by State

    Type:
    Quick Reference

    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.