Background checks certainly are nothing new, and they come in many flavors: e.g., criminal history, social media check, credit report, etc. Increasingly, however, federal scrutiny of background checks has led some companies to reconsider their longstanding practices. The EEOC, for example, takes a close look at the use of background checks as a tool for weeding out undesirable applicants. In particular, the agency takes a dim view of credit reports because, just as certain minorities are statistically more likely to be arrested and/or convicted than the population as a whole, using credit reports arguably affects some protected classes more than others.
Against this backdrop, then, it should come as no surprise that a bill known as the Equal Employment for All Act (here) recently was reintroduced in the U. S. House of Representatives. The bill would amend the Fair Credit Reporting Act to prohibit the use of consumer credit checks against applicants and current employees for the purpose of making adverse employment decisions.
Given the bill's dismal track record in previous incarnations and the current makeup of Congress, there is little chance that it will become law this time around. It does provide a good opportunity, however, to reinforce a few points about the use of credit reports by employers:
(1) Credit reports are rarely used on a broad scale and can have a legitimate role in the hiring process. In fact, a 2012 survey by the Society for Human Resource Management indicates that the overwhelming majority of credit checks run by employers are for jobs that require some level of financial responsibility;
(2) Employers must be careful not to consider certain information that they may find in a credit report. For example, credit reports would likely indicate whether the individual had filed for bankruptcy, and some might reveal information about medical or health conditions. If an employer used any of that information as a basis for not hiring the individual, it could be unlawful;
(3) If an employer does take adverse action against an applicant or employee based on information in a credit report (or any other type of “consumer report,” as defined in the FCRA), it must jump through the required hoops, including giving proper notice to the individual, allowing the individual to review the report and to correct any inaccurate information, and more; and
(4) Some states (e.g., Hawaii, Illinois, Oregon, Washington) already have passed laws banning employers from using credit reports as a screening tool or for taking action against current employees, and many others are considering similar measures.