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 regarding citizenship and immigration status, effective June 11, 2020.
Updated to include information on a case involving the Fair Credit Reporting Act.
The Fair Credit Reporting Act (FCRA) provides the rules for employers to follow in order to obtain and use background check reports for employment purposes. This Legal Insight covers the FCRA provisions that employers need to know.
Updated to include state ban the box law, effective February 29, 2020.
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.
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HR guidance on using credit checks legally and fairly with job applicants in compliance with the FCRA.