Credit checks may violate Title VII if there is a disproportionate impact on a protected class.
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Background Screening Update:
EEOC Issues Letter
Cautioning Employers Against
Discriminatory Use Of Credit Checks;
Legislation May Soon Follow
By Christopher W. Olmsted
Employers routinely conduct credit checks as part of pre-employment screening. Sometimes this information is used to make hiring decisions. Can an applicant who is denied a job based on a credit report claim “discrimination”?
According to the EEOC, yes, it is possible. In an advisory opinion published in March 2010, EEOC Office of Legal Counsel published a letter suggesting that in some instances, the use of credit histories may constitute race discrimination.
While Title VII and other federal anti-discrimination laws “do not directly prohibit discrimination based on credit information,” wrote the EEOC counsel, “they may be implicated in some circumstances.”
“In particular, Title VII prohibits an employment practice that disproportionately screens out racial minorities, women, or another protected group unless the practice is job related and consistent with business necessity. Thus, if an employer’s use of credit information disproportionately excludes African-American and Hispanic candidates, the practice would be unlawful unless the employer could establish that the practice is needed for it to operate safely or efficiently.”
The EEOC acknowledges that some courts have determined that credit checks are appropriate for certain positions, such as where an employee handles large amounts of cash. The EEOC cited a 1997 case titled EEOC v. United Virginia Bank/Seaboard Nat’l, where the court ruled that even if the defendant bank’s credit check policy disproportionately screened out African-American job applicants, the bank had a business need to conduct pre-employment credit checks because employees handle large amounts of cash.
The EEOC is careful to note that its opinion is not law. However, the letter should cause employers to evaluate the need for credit checks, and to develop a rationale for why such checks are needed for a particular position. Credit checks may be easily justified, for example, for positions handling money, financial transactions, or valuable property.
Source: http://www.eeoc.gov/eeoc/foia/letters/2010/titlevii-employer-creditck.html
Legislators Seek To Restrict Use of Credit Checks
State and federal legislatures are considering laws which may restrict the use of credit checks. Congress is currently considering H.R. 3149, titled the “Equal Employment for All Act” It would amends the Fair Credit Reporting Act to prohibit a current or prospective employer from using a consumer report or an investigative consumer report for either employment purposes or for making an adverse action, if the report contains information that bears upon the consumer's creditworthiness, credit standing, or credit capacity. For private employers, the only exception would be for employees in a in a supervisory, managerial, professional, or executive position at a financial institution.
In California, the legislature is currently considering AB 482. This bill would prohibit an employer, with the exception of certain financial institutions, from obtaining a consumer credit report for employment purposes unless the information is (1) substantially job-related, meaning that the position of the person for whom the report is sought has access to money, other assets, or
confidential information, and (2) the position of the person for whom the report is sought is a managerial position, or a position for which the information contained in the report is required to be disclosed by law or to be obtained by the employer.
Existing State and Federal Law Regulates Credit Checks
Employers should know that both state and federal law already regulates the use of credit checks in the employment context.
The federal law is Fair Credit Reporting Act (FCRA). The FCRA governs employment background checks used for the purposes of hiring, promotion, retention, or reassignment, and it applies when an employer hires a third party (a background screening company, for example) to conduct the check.
The FCRA requires employers to give applicants or employees written notice that a credit report may be required. The individual must sign a document acknowledging and giving permission. If information from the report will be used to make an adverse decision (e.g. not to hire the applicant) then the individual must be given notice and the right to review the report, as well as an opportunity to dispute the information. The credit report may include credit information as far back as seven years.
California has similar protections for employees. California law includes the Consumer Credit Reporting Agencies Act (CCRAA) and the Investigative Consumer Reporting Act (ICRA). The CCRAA an employer to obtain a copy of your credit report for “employment purposes.” As under federal law, written permission is required for a credit check. The applicant or employee may elect to receive a copy of the credit report.
Many employers retain the services of a background screening agency. California employers should confirm that the agency is familiar with both federal and California laws. Most agencies will provide appropriate disclosure documents for use with employees and applicants.
Download entire June 2010 Legal Update in PDF format.
This article is intended as a brief overview of the law and are not intended to substitute as legal advice. Any questions or concerns regarding any statute or case law should be addressed to a licensed attorney. Copyright © 2010 by Barker Olmsted & Barnier, APLC. San Diego, California. All rights reserved.
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