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
Updated to reflect amendments to criminal screening law, effective May 26, 2017.
Updated to reflect forthcoming law restricting salary history inquiries.
Updated to reflect forthcoming law protecting employers from negligent hiring claims.
Updated to reflect forthcoming criminal history regulations.
Updated to include credit check law, effective April 7, 2017.
In this engaging 60-minute webinar, New Jersey employment attorney Steven Luckner, of Ogletree Deakins, will address a host of key issues involving background checks.
Updated to reflect District of Columbia law restricting credit checks.
Updated to reflect New Orleans credit check law, effective December 23, 2016.
Updated to reflect new 'ban the box' law, effective January 1, 2017.
HR guidance on using credit checks legally and fairly with job applicants in compliance with the FCRA.