Employee Credit Checks – A Hot Topic

Credit checks have gained traction as a screening device to deny jobs to applicants with bad credit.   Prospective employers must ask permission to do a credit check under the federal Fair Credit Reporting Act, but refusal to grant the request can cause a job offer to evaporate.  As such, credit checks may create a barrier even for fiscally responsible applicants who have suffered financial setbacks due to job loss, medical costs and housing problems.  However, in most states, it is legal to do credit checks, and employers have shown increased interest in using them as an applicant screening tool.

Three States Bar Routine Credit Checks

Hawaii, Washington and, most recently, Oregon, have made routine credit checks by employers illegal.  In New York, a bill was introduced in the state legislature in 2009, but it is not on the current legislative agenda.  However, even in the states with protective legislation, credit checks may be used for employees with certain specific fiduciary or financial responsibilities.

Credit Checks Create Risks for Employers

Among employers there is sharp disagreement over whether credit checks will weed out potential problem employees, and whether it is worth the risk of uncovering private employee information to do so.  A legally conducted credit check can reveal information unrelated to the prospective employee’s credit status which may leave the employer open to claims of illegal discrimination if the applicant is turned down after a credit check.  Employers are well-advised to limit the use of credit checks to obtaining information substantially related to an employee’s duties or they may suffer unintended consequences.