Are Credit Checks Illegal?

Position:HR UPDATE

Even seemingly neutral hiring criteria may inadvertently have an adverse effect on a protected group of people. Using credit histories when evaluating applicants for employment has come under the watchful eye of government agencies, because, among other things, it may have a disparate impact on certain minority job applicants. Insurance industry human resources executives should be aware of these rules. The Equal Employment Opportunity Commission ("EEOC"), for example, recently filed suit against an employer alleging that the company engaged in a pattern or practice of unlawful discrimination by refusing to hire a class of black applicants nationwide based on their credit histories. The company has historically conducted background checks on all applicants, regardless of race, if applicants would be dealing with financial matters.

According to the EEOC, however, this justification is insufficient. It maintains that the company's practice is neither job related nor justified by business necessity and thus violated Title VII of the Civil Rights Act of 1964. Denying jobs to applicants with imperfect credit histories was not directly relevant to the job, said the EEOC in its suit.

Although it is legal for employers to review applicants' credit histories, if they are used to evaluate applicants, employers should determine whether there is a sound business reason to obtain such information. Discrimination could be found if the credit background is not directly...

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