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 amendment clarifying the restriction on using an individual's arrest record, effective January 1, 2020.
Updated to reflect law regarding preemployment marijuana screening, effective January 1, 2020.
Enhanced to improve comprehensiveness, organization and scope of coverage.
This How To details the steps an employer should take to properly dispose of background check information.
This How To details the steps an employer should take to conduct a background check on a current employee and address any results that are unfavorable to the employee.
XpertHR has added two How To documents to address issues with background checks and enhanced a related policy.
Updated to include 'ban the box' law for larger employers, effective September 1, 2019.
This form should be used by an employer to obtain parental consent prior to obtaining a background check from a third-party consumer reporting agency on a minor aged under 18 in order to comply with the federal Fair Credit Reporting Act. (FCRA).
This checklist may be used by an employer to comply with the Fair Credit Reporting Act's requirements when engaging a third-party consumer reporting agency to conduct background checks.
HR guidance on using credit checks legally and fairly with job applicants in compliance with the FCRA.