Navigating the Fast-moving Credit-check Laws

Sep 2, 2010

In the next Journal of Corporate Recruiting Leadership, I take a four-part look at credit checks in the employment process. I outline the current federal limitations on an employers’ ability to obtain and use information regarding an applicant’s or employee’s credit history. I delineate the current proposed amendments to federal statutes. I look at recently enacted state legislation bearing on an employer’s use of credit reports. Finally, I suggest possible options for employers in dealing with this fast-changing legal landscape.

For these purposes online, I’m just going to tackle the fourth part — your options for handling federal and state legislation in flux.

Well, not just in flux but, it appears that both state and federal law is trending toward less access to consumer reports. Taking these changes into account, what can employers do to minimize their liability while still gaining access to credit information regarding current or prospective employees when necessary? The answer most likely involves the state and federal statutory definitions of “consumer reports” and “consumer reporting agency.”

The proposed federal changes, as well as proposed Oregon and Washington statutes, are only triggered when an employer obtains a report from a consumer reporting agency, generally defined as an entity that compiles consumer credit or other background information and provides consumer reports to third parties. If the employer itself obtains information regarding an individual’s credit history, these statutes are not triggered.

Although not as detailed as the information that a consumer reporting agency provides, an employer could still search for and obtain public court records for judgments entered against an individual.

While not as comprehensive, if not downright clunky, this is information that could provide similar information to a credit report. It would show, for example, whether any judgments have been entered against the individual for outstanding debts. An individual with a poor credit history may very likely have judgments against them in favor of one or more creditors. To the extent an individual’s failure to pay his or her debts is important to the employer, taking the time to search for judgments against a particular individual may provide the necessary information without running afoul of credit-check regulations.

Employers conducting their own searches must be careful, however, of the restrictions of the Bankruptcy Code, which prohibit an employer from terminating or otherwise discriminating against an employee solely on the basis of a bankruptcy filing. For this reason, employers seeking to avoid the pitfalls of the proposed FCRA amendments and state statutes restricting the use of credit information with respect to certain positions should also avoid making any decision based on public bankruptcy filings. It is worth noting, however, that a recent case from the Western District of Pennsylvania held that the Bankruptcy Code’s discrimination provision does not apply to decisions made regarding prospective, not current, employees.

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