Credit Checks For Employment Purposes – Understanding State Compliance Requirements – July 28, 2015

By Curt Schwall, VP, Corporate Ethics and Compliance

Credit checks have over the years gone from a standard service in employment screening packages to a position specific screening tool. It was not uncommon for companies to review credit histories for all job applicants being considered for hire. Since the early 2000s, the credit check has increasingly been used only for specific positions. In general, these positions tend to either be executive level or positions of fiduciary responsibility.

Since the beginning of the “Great Recession” in 2007, more scrutiny has been placed on the use of credit checks for employment. With so many individuals impacted by the economic downturn, several states took action to limit the use of credit reports. Many more states are still considering statutory restrictions.

If your company utilizes credit checks as part of your employment screening package of services, you should be aware of the restrictions on use and any additional compliance disclosures that must be made. For any applicants residing in, or applying for prospective employment in the following locations, note that there are additional legal requirements for you to include in your program:

  • California
  • Colorado
  • Connecticut
  • Hawaii
  • Illinois
  • Maryland
  • Nevada
  • Oregon
  • Vermont
  • Washington
  • Cook County, IL
  • New York City (effective September 3rd, 2015)

All of the aforementioned jurisdictions have laws that prohibit the use of credit check for employment purposes unless there is an approved exception. These exceptions vary for each jurisdiction, so it’s important to understand the legal requirements of each. Many of these jurisdictions for example, have exceptions for managerial positions and for positions with access to company assets of a certain value. Other jurisdictions have more general exceptions that establish a threshold that the information (credit report) is “directly related to a bona fide occupational qualification.”

In addition to the narrowed use requirements, several of these jurisdictions have additional disclosure requirements that must be made to the individual in advance. The following locations have additional disclosure requirements that must be provided to applicants:

  • California
  • Colorado
  • Connecticut
  • Maryland
  • Oregon
  • Vermont
  • Washington

To assist our clients with compliance in use of credit reports for employment purposes, SterlingBackcheck has published a guide titled “State-by-State Restrictions on Obtaining Credit Reports for Employment Purposes” that provides detailed information on the laws in each jurisdiction. Information regarding the various statutes, effective dates, restrictions, exceptions for use and disclosure requirements are all contained in this reference guide.

If your company is a user of credit reports, this guide is a must have for your compliance efforts. Click here to obtain a copy.

Should your company want to discuss credit report compliance, please feel free to reach out to me directly at curt.schwall@sterlingts.com.