Governmental Affairs - News & Articles
Federal Legislation to Prohibit Use of Credit Checks for Employment Purposes (SA 3795)
Pending legislation could soon prohibit most employers from using information regarding creditworthiness, credit standing or credit capacity in an applicant’s consumer credit report, even when authorized by the applicant, in making any employment decision. When conducting background checks on applicants, employers often use credit history to assess whether the individual may pose a risk to the organization or its customers, especially if the job involves access to cash or other financial duties. However, the impetus for this legislation is due to the concerns raised by the many individuals who lost jobs during the recession and then had difficulty securing new employment due to adverse credit report information which resulted from the long periods of unemployment which, in turn, created even greater financial distress and made finding new employment even more problematic. The requirements in Senate Amendment 3795 would amend Senate Bill 3217, the “Restoring American Financial Stability Act of 2010,” a bill designed to improve accountability and transparency in the financial system and to protect consumers from abusive financial services practices.
Exceptions to the Ban
There are a few exceptions to the ban on credit history which would affect those individuals who apply for, or currently hold: 1) employment that requires national security or FDIC clearance; 2) employment with a state or local government agency; and 3) employment in a management position with access to customer funds at a financial institution.
A number of states, including Wisconsin, have introduced similar legislation, which has passed in only three states: Washington, Hawaii and Oregon; Wisconsin’s Assembly Bill 367 and Senate Bill 275 both failed to pass the Wisconsin Legislature earlier this year.
Currently, under the Fair Credit Reporting Act (FCRA) individuals have some protections when employers use credit reports during background checks as part of their hiring process, which include the following: employers must provide a written notice to the individual stating the source of the information and how it will be used; employers must provide a copy of the credit report to the applicant upon request and before taking an adverse action; if an adverse employment action is taken against a prospective employee due to the information contained in a consumer credit report, the user must provide the name and contact information for the reporting agency to the consumer and explain the reasons for the action; credit scores are not provided to employers for employment decisions.
Senate Bill 3217 has been placed on the Senate Legislative Calendar under General Orders Calendar No. 349 and is anticipated to move forward this month.
If you have any questions about the issues in this article, or any other employment law matter, please call or e-mail me. Thanks.
Thomas P. Krukowski