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 additional salary history inquiry restrictions under Oregon's equal pay law, effective January 1, 2019, and final rules implementing the law.
Updated to reflect law prohibiting salary history inquiries during the hiring process, effective January 1, 2019.
Updated to reflect salary history inquiry law, effective January 1, 2019.
Updated to reflect amendments to criminal history inquiries law, effective January 1, 2019.
Updated to reflect forthcoming amendments to the New Orleans 'ban the box' ordinance.
Enhanced to improve the comprehensiveness, organization and scope.
Updated to include amended notice requirements under the Fair Credit Reporting Act, effective September 21, 2018.
Updated to include Vermont recreational marijuana law, effective July 1, 2018.
Updated to reflect Spokane 'ban the box' law, effective June 14, 2018.
Updated guidance to include information on the European Union's General Data Protection Regulation, effective May 25, 2018.
HR guidance on using credit checks legally and fairly with job applicants in compliance with the FCRA.