Credit Reports and Employment Applications -- Don't use them

Employers should  only perform credit and consumer report checks on applicants for employment for financially sensitive positions that

require bonding. The EEOC recently sued the Kaplan Corporation for using credit checks in hiring decisions.  Kaplan argues that the job openings for which they used credit reports involved financial advice to students and that, thus, the credit information was important information about the applicants fitness for the job.  The EEOC disagrees, claiming that such credit checks have a disparate impact on minority applicants. While the EEOC’s position does not yet have the force of law, since the EEOC is the agency charged with discrimination enforcement,  until resolution of this lawsuit, a prudent employer should refrain from using credit checks in making employment decisions, whenever possible.

 

Avoiding credit checks should not be much of a hardship.  Studies have shown that poor credit ratings, in general, have no relationship to job performance.

 

If an employer feels it must run a credit check, the employer should ensure compliance with the Fair Credit Reporting Act. Generally speaking, employers need an employment purpose for obtaining a consumer credit check on applicants and employees, and must provide the employee a clear written notice of its intent to obtain such a report. The applicant or employee must then give written permission to obtain the report. This should be a stand-alone document and not part of the job application. The employer must then certify to the credit reporting agency that it has complied with the FCRA. If the applicant is turned down for the position, and information in the consumer report is a factor in the decision (even if only a minor factor, with other sufficient reasons, or even if the information wasn’t negative, but was a factor) then the employer must comply with the FCRA procedures. Generally, that requires the employer to provide adverse action notice telling the applicant why the decision was made, providing the employee or applicant with a written description of rights, providing a copy of the report, and the name and address of the reporting agency or service that provided the information. The employee or applicant can also request information about the sources used for the report and the other recipients of the report. More details can be obtained from the Federal Trade Commission’s web-site at

 

• www.ftc.gov/bcp/edu/pubs/business/credit/bus08.shtm

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Jeanelle R. Lust

 

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