\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0A potential client walks into your office for a consultation. He is extremely upset. He tells you he has been out of work since his previous employer downsized, and he just had a very promising interview for a job that would have been perfect for him. The interview had gone extremely well, but a couple of days later, the company called him and told him he would not be hired because of information in his credit report.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0“I know I’m behind on my bills, ” the client tells you, “but that’s because I’ve been out of work. If I can get a job, I can catch up on my payments. How can I fix my credit report if no one will hire me because of my credit? Can they do that?” You sigh, and give him the answer. “It depends.”
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0In recent years, a large number of employers routinely conducted credit checks on job applicants, but the number of employers using credit checks in the hiring process seems to be declining. The Society of Human Resource Management reports that 53 percent of employers they surveyed in a 2012 report say they do not run credit checks on potential job applicants, which is up from 40 percent in 2010.1 This change reflects the growing concern regarding using credit reports to evaluate potential job applicants, as evidenced by pending federal legislation and by the number of state legislatures that have recently enacted laws restricting this practice.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Why do employers run credit checks? According to the same study by the Society of Human Resource Management, employers conduct credit checks to guard against embezzlement or theft or to avoid “liability for negligent hiring.”2 However, research has not shown any relationship between a person’s credit report and his or her performance as an employee. In remarks before the Equal Employment Opportunity Commission on October 20, 2010, attorney Sarah Crawford, Senior Counsel with the Employment Discrimination Project of the Lawyers’ Committee for Civil Rights Under Law, testified that “credit information does not predict job performance” 3 and cited studies to support her position. Ms. Crawford also pointed out that credit reports often contain errors that may be misleading. If all that is true, why do employers have the right to review this information at all when evaluating job applicants?
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Fair Credit Reporting Act allows employers to obtain credit reports for employment purposes.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Fair Credit Reporting Act 15 U.S.C. § 1681 et seq. (FCRA) establishes procedures for the collection and distribution of data concerning consumer credit transactions. FCRA authorizes employers to obtain credit reports on potential employees and current employees who may be up for promotions. 15 U.S.C. § 1681(b) expressly authorizes the release of a consumer credit report for the purpose of determining eligibility for employment and sets forth the conditions that the employer must meet. It is worth noting that while the employer may receive the credit report, the report does not contain a consumer’s credit score.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Requirements for employers who request credit reports for employment purposes
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Before a potential employer may request a credit report for a job applicant, FCRA requires the employer to provide a written disclosure to the applicant that states the credit report may be obtained for employment purposes. The potential employee must give written permission f or the report to be obtained. According to the language of the statute, the disclosure by the employer must be given in a separate document and must be “clear and conspicuous.” 4 Therefore, the disclosure cannot be a section on the form of the regular application for employment. However, this disclosure/authorization requirement could be viewed as a somewhat hollow right since nothing in the law prohibits employers from refusing to hire someone based solely on that person’s refusal to allow the employer to obtain a credit report.