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Credit checks in background verifications – do you know the rules?

July 30, 2018

By Susan Chance, courtesy of SBAM Approved Partner ASE

Regulations regarding background checks are updated constantly. Changes regarding the use of criminal checks in hiring decisions are publicized every time a new state or city decides to enact legislation on this subject. The amount of press given to requirements on authorization forms has been growing the last couple of years as the number of lawsuits regarding this topic also grows. But what about the regulations regarding the use of credit checks in a background verification?

It is important to stay abreast of the ever-changing laws and regulations regarding backgrounds. Credit checks are not exception. If you use a third party to process your background checks you must follow all FCRA requirements, and you must also follow state/local laws.

In addition to FCRA requirements, the EEOC prohibits employers from illegally discriminating any classes protected by Title VII. The EEOC may also require an exception to a financial requirement for a position if the applicant “cannot meet the requirement because of a disability.” 

Several locales have placed limits on employers when it comes to credit checks:

  • California
  • Colorado
  • Connecticut
  • Hawaii
  • Illinois
  • Maryland
  • Nevada
  • Oregon
  • Vermont
  • Washington
  • District of Columbia
  • Chicago
  • New York City
  • Philadelphia

The jurisdictions listed above view credit as an irrelevant factor for making decisions regarding employment. They do have some exceptions:

  • Banks and financial institutions (Chicago, Colorado, Connecticut, DC, Hawaii, Maryland, Oregon, Philadelphia, and Vermont)
  • Managerial positions (as defined by the state/city legislation) (California, Colorado, Hawaii, Illinois, and Philadelphia)
  • Positions with access to specified personal information (other than routine transactions and as defined by the state legislation) (California and Maryland)
  • Positions with access to confidential/proprietary information, security data, or trade secrets (California, Connecticut, Illinois, Maryland, New York City, Philadelphia, and Vermont)
  • Positions in law enforcement (California, DC, New York City, Oregon, Philadelphia, and Vermont)
  • Positions involving access to assets of above a certain amount or with signatory authority to enter transactions on behalf of the employer (California, Connecticut, Illinois, Maryland, New York City, Philadelphia, and Vermont)
  • Positions with regular access to more than a certain amount in cash (California – $10,000 and Illinois – $2,500)
  • Positions with access to expense accounts or corporate cards (Connecticut and Maryland)

Credit checks should only be run if there is a bonafide occupational qualification to do so, and in some cases,  it is a legal requirement to run a credit check. So how do you protect your company when it comes to using credit checks for employment purposes.

  • As always, consult with your corporate counsel regarding your background/credit check policy before roll-out
  • Check all states/jurisdictions in which your company does business
  • Have a documented policy regarding the use of credit checks including
    • Which positions require a credit check
    • Guidelines for pass/fail results
    • Train all required staff members on the policy
    • Include training on authorization requirements
    • Include training on pre-adverse/adverse action policy

Credit checks can provide valuable information regarding potential employees, and in some cases can help to prevent negligent hiring. Just make sure you are only checking credit when necessary for the position and that you are following all required laws when doing so. 

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