Friday, June 5, 2015

Are Employment Credit Checks the New “Ban the Box”? What You Need to Know!

Created by Kimberly Kline, API

In February 2017, the District of Columbia was the latest jurisdiction to restrict the use of Credit Checks in Employment Decisions.  Titled the “Fair Credit in Employment Amendment Act”, it  amends the Human Rights Act of 1977 to make it illegal for an employer to “directly or indirectly require, request, suggest, or cause any employee to submit credit information, or use, accept, refer to, or inquire into an employee’s credit information.” 

Even if your state has not yet enacted a similar law, it is wise to do what you can now to be ready. Read on for what you need to know......  

The debate on the use of Credit checks 
during the employment process 
continues to make the news.

A growing number of states have passed laws to curb or eliminate the use of credit checks in employment decisions.  California, Chicago, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, Washington, and New York, have all joined in the latest wave of states to enact legislation prohibiting discrimination in hiring based on a person’s consumer credit history.

The use of employment credit checks has also been addressed on a national level.  The Equal Employment for All Act (introduced in the House in early 2013) seeks to amend the Fair Credit Reporting Act to prohibit or limit the use of credit reports to determine employment.

Using Credit Checks in employment decisions has come under fire because many believe that it to be discriminatory.  The checks are deemed an unfair measure of a person’s future job performance. 

People with damaged or problem credit due to student loans, a lost job or layoff, divorce, identity theft or even credit report errors can be denied jobs.  

"A bad credit rating is far more often the result of unexpected medical costs, unemployment, economic downturns, or other bad breaks than it is a reflection on an individual's character or abilities," Elizabeth Warren  
(originally cited in my previous article on Credit Checks ~ Employment Credit Checks ~ Will They Soon to Become a Thing of the Past?)

Whether at the State or National level, credit checks would still be allowed for certain positions that, by law, require them. 
Government jobs that need security clearances, executive and managerial positions in the banking industry, certain jobs within the state or local government, to name a few.

Many job seekers are unsure of exactly when an employer will check their credit.  In reality, it is probably not as often as they may think.  Most likely it is for positions where there are specific financial or security concerns.

When an Employment Credit Check is required, it will include:

  • Details About You and Your Finances including name, address, previous addresses, and your social security number.

  • Debt You Have Incurred including mortgage(s), credit cards, student loans, and car loans. 

  • Your Payment History

Another area of confusion is what an employer is really looking for when they run a credit check.  In most cases it is for patterns. For example, if the report shows evidence of ongoing money mismanagement, they may be seen as unqualified for a position in managing company funds.  In addition, it could also lead to the perception that the applicant is susceptible to coercion

What seems to have been forgotten is that 
Credit Checks were never intended to be used 
to decide employment 
or as an indicator of a person’s 
potential job performance or of their character. Their original purpose was as a way to determine whether a person was a good risk for getting a loan.  And that is where it ended.

Since then, it has morphed into something else completely.  
Employers have been the subject of a marketing effort to push the use of Credit Reports as part of their hiring process.  

Preying on fears of company security, these reports are being touted as an additional way to protect your company from theft or fraud. The problem is that there is no proven link between the information found in a credit report and any criminal behavior.

And, as with any “online” based report, there is the possibility of errors.  Mistakes concerning late payments, foreclosures, and accounts in collection do occur.

My take on this....

Employment Credit Checks are the New “Ban the Box”.  “Tweet This”

Much like with that movement, the issue is whether a credit check is really necessary for most positions.  It is also believed that by their nature, a credit check can lead to discrimination against certain groups that have been more effected than others by the economy and other circumstances.

Treating credit checks 
in the same way the EEOC recommends employers treat criminal record checks 
can help.

The first step should always be to make sure running a credit check is necessary for the position you want to fill.  If it is not, then there is no need to proceed.  

However, if you determine a credit check is warranted, then you will have to consider the following....

Anytime an Employer conducts a background check using a third party (a background or credit check company), it is covered under the Fair Credit Reporting Act (FCRA) and is governed by a set list of guidelines.  

These Guidelines Include:

  • Notification Up Front that a Background / Credit Check will be Done  This includes obtaining a stand alone signed release authorizing the check that includes the name of the reporting agency.  

  • Clear Notification of the Applicant’s Rights  Including the right to deny permission for the check (although this usually results in termination of the hiring process) and the applicant’s rights in the event negative information is listed in the report.

  • Written Notification if Adverse Information is Found  This should include all details of any information uncovered.

  • Chance to Explain/Mitigate any Findings  This should also include the applicant’s rights to contact the reporting agency to correct any errors in their findings.

  • Written Notification of the Final Determination

From the employer’s perspective, the key is to remember to Document Everything!

On the job seeker’s end, the best course of action is to check your credit histories yourself before applying.  Knowing what is listed and correcting any misinformation beforehand makes sense.

“While there will be continued debate on the issue, curbing the use of credit checks in making employment decisions seems wise.  The economy and job picture has put many in our country in precarious situations.  Further penalizing them by limiting their job prospects is counter-productive.

Filling and creating more jobs to help people get their lives back in order will do more for our country than putting more obstacles in their way.  I believe that every employer has the right and obligation to hire wisely, but relying on credit checks to make those decisions is not the answer.”
excerpt from my article “Employment Checks ~ Will They Soon Become a Thing of the Past?”.


You can find more about getting ready for an Employment Background Check in my articles on “Tips to Help Get Your Resume Background Check Ready” and “Why You Should Run a Background Check on Yourself”! 

Both will help you put your best foot forward when the time comes to apply for the job you want!

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