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There seems to be a lot of chatter about how reviewing someone’s credit report as part of the background screening process has somehow become taboo. During these slow economic times, people are struggling financially and some say it isn’t fair to take their personal finances into account as part of a hiring decision.
Yes, it is true that many people are facing money challenges, but credit history reports remain a useful screening tool in evaluating a candidate’s suitability for certain positions. An applicant’s credit history can reveal significant characteristics about their financial management capabilities, behavioral patterns and attitudes toward finances.
Responsible Employers vs. Government Regulations
Knowledgeable employers already understand that the use of a credit report during the hiring process without any guidelines or parameters is unwise. Now, it’s illegal. In March, Oregon enacted a law (Senate Bill 1045) that specifically prohibits employers, with a few exceptions, from using credit history in making hiring, discharge, promotion and compensation decisions, unless the applicant or employee is given advanced written notice and the credit history is substantially related to the position sought.
While the requirement of advanced written notice is already stipulated in the federal Fair Credit Reporting Act (FCRA), this new legislation demonstrates further government intervention between applicants/employees and the employer.
It also demonstrates the importance of setting and following reasonable guidelines to hopefully prevent other states and the federal government from following suit and placing overly strict regulations upon employers.
If you want to utilize credit history reports as an employment background screening tool, here are some tips to keep in mind:
Have the applicant/employee complete and sign a disclosure and authorization document (this is required by the FCRA).
Obtain credit reports for only those positions where it is job related. Obvious examples would be those with direct financial responsibilities such as a CFO, accountant or bookkeeper. Also consider those positions that have access to large amounts of cash, company credit cards or sensitive customer information like social security or bank account numbers.
Thoroughly review the credit report, taking into consideration life circumstances. Someone racking up a mountain of debt with no intention of paying it back is very different than someone who unexpectedly incurred large medical bills or a sudden job loss.
Refrain from using credit history information as the only criteria for a hiring decision. It’s just a piece of the candidate’s overall background and must be handled as such.
If you decide not to hire or promote an applicant or employee based on the background check (including the credit report), you must provide a notice to the applicant prior to taking the adverse action, give them a reasonable amount of time to dispute any inaccurate information, and also provide a separate notice after taking the action.
The notice must provide the applicant with information on how to obtain a copy of the report. (This again is required by the FCRA).
Employers should always consult legal counsel regarding what information can be used in evaluating a candidate, as well as for assistance in setting up internal policies and guidelines to ensure that the use of credit information is legal, relevant and fair.
With this in place, your company can maximize the benefits that come from using credit history reports as part of your background screening practices.
Please Note: Information and resources provided by Clarifacts are for educational purposes only and should not be construed as, or a substitute for, legal advice. Employers should consult legal counsel about their specific compliance responsibilities under federal, state and local laws and any other applicable legal and regulatory requirements.
Kevin Klimas is the president and founder of Clarifacts, an employment background screening company serving conscientious clients for nearly 20 years. As a founding member and former board member of the Professional Background Screening Association (PBSA), Kevin is outspoken about screening the right way. In fact, he speaks on this topic at HR conferences and in various media outlets, sharing his enthusiasm for helping others understand all things background checks. Kevin is a member of SHRM and holds a Fair Credit Report Act Advanced Certification from PBSA. He has a Bachelor of Science in criminology and criminal justice from Arizona State University (Forks Up!) and has nearly completed his quest to visit every Major League ballpark.
Clarifacts is a pre-employment background check company specializing in personalized solutions for human resources leaders. From basic screenings to more specific services for specialized industries, Clarifacts has the experience, knowledge and technology to create a better background check experience, supported by a friendly, responsive, tenured team.
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