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Is Checking Credit on Applicants a Violation?
Recently there has been much discussion on banning employers from checking the credit history of potential employees. While Hawaii, Oregon, Washington and Illinois are the only states that have laws limiting or prohibiting credit checks by employers on applicants and employees, 18 states are now considering bills that would limit the use of credit checks for background screening purposes.
The use of credit checks has increased in recent years. A recent survey by the Society for Human Resource Management said 60% of employers now run credit checks for at least some positions, which has increased from 42% in a similar survey from 2006.
Below are some of the key points from a few of the states considering new legislation:
- Florida Senate Bill S.B. 1562: Florida's bill would limit the ability of employers to use credit report information and make the use of personal credit report data of job applicants by employers as a factor in a hiring decision an "improper employment practice" unless the credit report data is "directly related to the position sought by the applicant." Even if relevant, the information "may not be the determining factor in whether the applicant is ultimately hired to the position sought."
- Georgia S.B. 42: Georgia's bill would limit the credit report to the following positions: Managerial - involving setting the direction or control of the business; Any position that involves access to customers', employees', or the employers' personal or financial information other than that information customarily provided in a retail transaction; Any position that involves a fiduciary responsibility to the employer including, but not limited to, the authority to issue payments, transfer money, or enter into contracts; or Provides an expense account.
- Kentucky H.B. 144: The Kentucky bill states that it is unlawful for an employer to fail or refuse to hire, to discharge, or otherwise disadvantage any individual with respect to compensation, terms, or conditions of employment based on the individual's credit history or credit score, unless the individual's credit history or credit score is directly, materially, or substantially related to the duties and performance of the employee or the overall operation of the employer's business.
- Missouri H.B. 37: This bill prohibits an employer from using a job applicant's personal credit history as a hiring criteria except where the credit history is shown to be directly related to the position sought by the applicant. If the applicant's credit history is directly related to the position, the history cannot be the determinant factor in whether he or she is ultimately hired.
For more information on how to make sure you are in compliance with the laws of your state, please read our article below on What a Credit Report Policy Should Look Like. If you want information on bills in your state, click here for a complete list.
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Compliance Corner - Using Credit Reports? What Should a Credit Report Policy Look Like?
This is not intended to provide legal advice. You should consult your own company's Human Resource and Legal departments and/or obtain legal advice.
- The purpose of performing Employment Credit Reports is to determine and or confirm, within appropriate legal and professional limits, the qualifications and suitability of a job candidate for the particular position for which the candidate is being considered.
- All candidates must sign appropriate authorizations and consents prior to performing any pre-employment background checks.
- Prior to taking any adverse action, appropriate pre-adverse and adverse action notices must be sent to the candidate pursuant to federal and any state FCRA laws together with a copy of the report and a summary of their rights under the FTC.
- Having adverse information, including a judgment, lien or bankruptcy should not automatically preclude a candidate's eligibility for employment.
Things to consider:
- A company's use of credit reports can be limited to the following positions: Accounts payable, Accounts receivable, Employees that handle cash or cash equivalents, Senior Management.
- Employment decisions should not be based solely on information in a credit report.
- Bankruptcy information should not be considered. Bankruptcy is used for a "Fresh Start".
- Extenuating circumstances, such as illness, divorce or other family problems should be taken into consideration.
- Consideration should also be given to whether or not the applicant's personal financial problems will interfere with their ability to perform their duties. Discuss this with the applicant when appropriate to determine how the applicant is dealing with their problems since some employees are required to deal with their financial problems during the day.
- Senior Management applicants should also be reviewed with respect to their ability to manage the company's affairs given their management of their personal obligations.
- A person with financial problems does not mean they will engage in inappropriate activity.
- You should do an annual review of all policies.
If you have any questions, feel free to call me, Johnna Leeds 256-325-6779.
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Data Facts Announced as Finalist in the Memphis Business Journal's 31 Small Business Awards Program
Finalists have been chosen in four categories for Memphis Business Journal's 31st annual Small Business Awards program. MBJ staffers who voted on the selections are calling the group of companies and executives the most impressive and interesting in many years.
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