Credit Report Usage Restricted for Employment Purposes in Seven States
California became the seventh and most recent U.S. state to pass a law limiting credit report checks for employment purposes. Effective January 1, 2012, California instituted AB 22: Prohibition on Use Of Credit Reports For Employment Purposes.
AB 22 prohibits the use of credit reports for employment purposes except in very limited circumstances. The law does not apply to certain federally and state regulated financial institutions. All other employers and prospective employers are prohibited from obtaining or relying on consumer or credit reports in making employment decisions about employees or applicants for employment. The only exception is where the position at issue is one of the following:
- a position in the California Department of Justice;
- a managerial position, defined as one that qualifies for the executive exemption from overtime;
- a sworn peace officer or other law enforcement position;
- a position for which the information contained in the report is required by law to be disclosed or obtained;
- a position that involves regular access to specified personal information (bank or credit card account information, social security number, and date of birth) for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment;
- a position in which the person is or would be a named signatory on the employer’s bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer’s behalf;
- a position that involves access to confidential or proprietary information that qualifies as “trade secrets” under Civil Code Section 3426.1(d); or
- a position that involves regular access to cash totaling $10,000 or more of the employer, a customer, or client during the workday.
AB 22 also requires that an employer provide written notice to the applicant or employee when it seeks a consumer credit report under one of the exceptions above, specifying the permissible basis for requesting the report and also providing a box to check off to request a copy of the report. In that circumstance, a copy of a the report must be provided free of charge at the same time as the employer receives a copy of the credit report. As is currently the law, if the employer makes an adverse employment decision based on information in the credit report, it must notify the applicant or employee of that fact and provide the contact information of the credit reporting agency.
In 2011 CONNECTICUT passed a law that applies to all employers with one or more employees as well as the state government and its political subdivisions. Under its provisions, employers may not require an employee or prospective employee to consent to a credit report, with several exceptions including managerial positions that involve setting the direction or control of a business, division, unit or an agency of a business; access to personal or financial information of customers, employees or the employer (other than information customarily provided in a retail transaction); if the position involves a fiduciary responsibility to the employer, and other specific exceptions.
In 2011 MARYLAND passed a law stating non-exempt employers may not use a job applicant's or employee's "credit report" or "credit history" to determine whether to deny employment to the applicant, to discharge the employee, or to determine the terms, conditions, or privileges of employment, including compensation. General exception allows employers to request or use 1) an employee's credit report or history; or 2) the credit report or history of an applicant who has been offered employment – that is, the credit check must be post-offer – for any purpose not explicitly prohibited by the Act, or if the employer has a "bona fide purpose" for the information.
In 2011 ILLINOIS passed a law that prohibits many Illinois employers from basing hiring, promotion, and other employment decisions on an employee or job applicant's credit history. There are limited exceptions to the law. For example, covered employers may still use credit history for employment decisions for managerial positions that involve setting the direction or control of the business and for positions that involve unsupervised access to more than $2,500; signatory power over business assets of $100 or more per transaction; or access to personal, financial, confidential, trade secret, or state/national security information.
In 2010 OREGON enacted SB 1045. Joining Washington and Hawaii, the Oregon law (originally effective July 1st 2010 but the governor of Oregon declared the law effective immediately) prohibits the use of credit history for employment purposes including hiring, discharge, promotion, and compensation. The law provides exceptions for financial institutions, public safety offices, and other employment if credit history is job-related and use is disclosed to applicant or employee. The law establishes any violation as an unlawful employment practice, enforceable through the Bureau of Labor and Industries and civil action.
In 2009 HAWAII enacted HB 31, a law that establishes an employer's use of an individual's credit history or credit report in hiring and termination decisions as an unlawful discriminatory practice unless the information directly relates to a bona fide occupational qualification under the Hawaii Fair Employment Practices Act.
In 2007 WASHINGTON state adopted bill 5827, which states that a person may not procure a consumer report for employment purposes where any information contained in the report bears on the consumer's credit worthiness, credit standing, or credit capacity, unless the information is either: (i) Substantially job related and the employer's reasons for the use of such information are disclosed to the consumer in writing; or (ii) Required by law. This law reduces the risk of successful disparate impact claims based upon denial of employment because of poor credit history.
Under federal fair employment law, employers should consider the job-relatedness of credit information in making employment decisions. Rejecting applicants based upon poor credit history may disproportionately exclude certain minority groups from consideration. The EEOC contends an organization should not use such information if it causes a "disparate impact,"
unless justified by job-relatedness and business necessity.
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