August 09, 2019

Congress Considers Restricting Credit Checks During Hiring

New federal restrictions on hiring practices could be around the corner. Last month, the U.S. House Committee on Financial Services passed a bill titled “Restricting the Use of Credit Checks for Employment Decisions Act” which would prohibit employers from asking questions about the credit history of job applicants during job interviews or on job applications, except in limited circumstances.

Surveys estimate one-half of U.S. employers consider an applicant’s credit history during the interview process. Employers view credit reports as a useful tool to provide insight into a candidate’s judgment and potential risk, particularly when hiring for high-level executive positions or positions involving company finances. Credit reports reflecting past-due child support payments, multiple bills in arrears and debt collection can be red flags for an employer.

As proposed, the bill would amend Section 604 of the Fair Credit Reporting Act (15 U.S.C. 1681b) to add a provision stating that an employer may only request a consumer report in limited circumstances where one of the following is true:

  1. It is required by a federal, state, or local law.
  2. The information contained in the report is being used with respect to a national security investigation.

This bill tracks a trend at the state law level. As of July 2019, 11 states – California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington – and the District of Columbia, have passed laws that restrict the use of the credit reports by employers for employment purposes. The cities of Chicago, New York City and Philadelphia have also passed similar laws regarding credit checks by employers.

The proposed legislation also mirrors the position taken by the EEOC, which has long-denounced the use of pre-employment credit checks as disparately impacting protected classes, stating:

  • Inquiry into an applicant’s current or past assets, liabilities, or credit rating, including bankruptcy or garnishment, refusal or cancellation of bonding, car ownership, rental or ownership of a house, length of residence at an address, charge accounts, furniture ownership, or bank accounts generally should be avoided because they tend to impact more adversely on minorities and females. Exceptions exist if the employer can show such information is essential to the particular job in question.

Read more about the EEOC’s litigation history in this space in this prior alert.

While it remains to be seen how this legislation will fair at the federal level, employers should review their hiring materials and practices to not only ensure compliance with the applicable state law on pre-employment credit checks, but to be ready to enact changes as necessary in the months to come.

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