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

  • Background Checks

    Date:
    29 July 2014
    Type:
    Editor's Choice

    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.

  • Negligent Hiring: Illinois

    Type:
    Employment Law Manual

    In-depth review of the spectrum of Illinois employment law requirements HR must follow with respect to negligent hiring.

  • Interviewing and Selecting Job Candidates: Illinois

    Type:
    Employment Law Manual

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

  • Preemployment Screening and Testing: Illinois

    Type:
    Employment Law Manual

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

  • Conduct a Credit Check

    Type:
    Liveflo

    Use this workflow to determine how to obtain a credit report on a job applicant while ensuring that the employer remains in compliance with the Fair Credit Reporting Act (FCRA) and state law.

  • 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: Connecticut

    Type:
    Employment Law Manual

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

  • Preemployment Screening and Testing: Louisiana

    Type:
    Employment Law Manual

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

  • Background Checks: EEOC, FTC Release Tips for Employers

    Date:
    13 March 2014
    Type:
    News

    The EEOC and the FTC have teamed up to create new resources relating to the use of background checks for employment purposes.

  • New Nevada Employment Laws Take Effect October 1

    Date:
    26 September 2013
    Type:
    News

    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.