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A number of U.S. states have either passed, or are considering passing, laws regulating credit reports used by employers for employment purposes. Here is a summary of the eight states – California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont, and Washington – that have restricted the use of credit histories of applicants and employees. Employment Screening Resources (ESR) will continue to monitor this area and post updates.
Califorina Assembly Bill 22 (AB 22) amends Section 1785.20.5 of the Civil Code and adds Chapter 3.6 (commencing with Section 1024.5) to Part 2 of Division 2 of the Labor Code, relating to employment. AB 22 prohibits employers or prospective employers – with the exception of certain financial institutions – from obtaining a consumer credit reports for employment purposes unless the position of the person for whom the report is sought is one of the following:
In addition, AB 22 also requires the written notice informing the person for whom a consumer credit report is sought for employment purposes to also inform that person of the specific reason for obtaining the report.
California Passes AB 22 Placing Restrictions on Use of Credit Checks by Employers: http://www.esrcheck.com/wordpress/2011/10/11/california-passes-ab-22-placing-restrictions-on-use-of-credit-checks-by-employers/.
The “Employment Opportunity Act” (SB13-018) specifies the purposes for which consumer credit information such as consumer credit reports and credit scores can be used by employers or potential employers in making employment-related decisions.
Specifically, the “Employment Opportunity Act”:
The “Employment Opportunity Act” defines employment purposes broadly to include “evaluating a person for employment, hiring, promotion, demotion, reassignment, adjustment in compensation level, or retention as an employee.” Two types of employers are permitted to use consumer credit information for employment purposes under the law: “banks or financial institutions” and employers “required by law” to conduct credit checks. The remaining employers may only review credit reports for “executive or management personnel” and positions that involve “contracts with defense, intelligence, national security, or space agencies of the federal government.”
The law takes effect July 1, 2013.
Colorado Employment Opportunity Act Specifies Permissible Use of Credit Reports by Employers Starting July 1: http://www.esrcheck.com/wordpress/2013/04/29/colorado-employment-opportunity-act-specifies-permissible-use-of-credit-reports-by-employers-starting-july-1/.
The “Employment Opportunity Act”: http://www.coloradocapitolwatch.com/bill/0/SB13-018/2013/1/
Connecticut Senate Bill No. 361 (S.B. 361) prohibits certain employers from using credit reports in making hiring and employment decisions regarding existing employees or job applicants. The law took effect October 1, 2011 and applies to all employers in Connecticut with at least one employee.
Exceptions to S.B. 361 are employers that are financial institutions as defined under law, credit reports required to be obtained by employers by law, and credit reports “substantially related to the employee’s current or potential job.” These “substantially related” reports are allowable if the position:
New Connecticut Law Restricts Use of Credit Reports in Employment and Hiring Decisions Effective October 1: http://www.esrcheck.com/wordpress/2011/07/22/new-connecticut-law-restricts-use-of-credit-reports-in-employment-and-hiring-decisions-effective-october-1/.
Senate Bill 361: http://www.cga.ct.gov/2011/ACT/PA/2011PA-00223-R00SB-00361-PA.htm.
House Bill 31 SD1 CD1 was passed by the Hawaiian legislature – over the Governor’s veto – and put limits on the use of employment credit history or credit reports unless it “directly related to a bona fide occupations qualification” or falls under another exception. Effective July 1, 2009, the law amended the Hawaiian Fair Employment Practices Act by making it an unlawful discriminatory practice for any employer to refuse to hire or employ, continue employment or to bar or discharge from employment, or otherwise to discriminate against any individual in compensation or in the terms, conditions, or privileges of employment of any individual because of the individual’s credit history or credit report, unless the information in the individual’s credit history or credit report directly relates to a bona fide occupational qualification.
The law also indicated that in terms of hiring in the first place, the employer can only inquire into the credit history or credit report on a prospective employee only after there has been a conditional job offer, and only if the information is directly related to a bona fide occupational qualification. The law makes exceptions for employers that are expressly permitted to inquire into credit history or a credit report by federal or state law, financial institutions that are insured by a federal agency or to managerial or supervisory employees. The law sets out a specific definition of what constitutes a “Managerial” or “Supervisory” employee.
Hawaii Latest State to Put Limits on Use of Credit Reports: http://www.esrcheck.com/wordpress/2009/08/27/hawaii-latest-state-to-put-limits-on-use-of-credit-reports/.
House Bill 31 SD1 CD1: http://www.capitol.hawaii.gov/session2009/bills/HB31_CD1_.pdf.
The “Employee Credit Privacy Act” (Illinois House Bill 4658) prohibits employers in the state from discriminating based on the credit history of job seekers or employees. The law took effect January 1, 2011 and prohibits employers from inquiring about or using an employee’s or prospective employee’s credit history as a basis for employment, recruitment, discharge, or compensation. Employers who violate the new law can be subject to civil liability for damages or injunctive relief.
However, under the law, employers may access credit checks under limited circumstances, including positions that involve:
New Illinois Law Prohibits Pre-Employment Credit Checks on Most Job Applicants: http://www.esrcheck.com/wordpress/2010/08/11/new-illinois-law-prohibits-pre-employment-credit-checks-on-most-job-applicants/.
“Employee Credit Privacy Act” (House Bill 4658): http://e-lobbyist.com/gaits/text/21025.
The “Job Applicant Fairness Act” (Maryland House Bill 87) took effect October 1, 2011 and enacted new legislation placing restrictions on so-called credit checks by employers that use the credit report or credit history of job applicants or employees for employment decisions. Along with prohibiting an employer from using the credit report or credit history of an employee or job applicant for employment purposes, the Act specifically prohibits most employers from using credit checks to determine whether to:
While the Act applies to Maryland employers of any size, some employers are excluded from the Act’s prohibitions, including financial institutions and employers required under federal or state law to inquire into the credit history of job applicants or employees. In addition, the Act also allows exceptions for employers to request or use credit history information if the data is related to “a bona fide purpose that is substantially job–related,” an exception that generally applies to:
The Act also requires that employers wishing to request or use credit information of job applicants and employees for a bona fide purpose must disclose the intent to do so in writing to the job applicant or employee.
Maryland Latest US State to Place Restrictions on Use of Credit Checks by Employers: http://www.esrcheck.com/wordpress/2011/04/26/maryland-latest-us-state-to-place-restrictions-on-use-of-credit-checks-by-employers/.
"Job Applicant Fairness Act" (House Bill 87): http://mlis.state.md.us/2011rs/chapters_noln/Ch_29_hb0087T.pdf.
Oregon Senate Bill (SB) 1045, signed into law in February 2010 and declared to be effective immediately, prohibits the use of credit histories of job applicants in making employment-related decisions including hiring, discharge, promotion, and compensation.
However, SB 1045 provides exceptions for financial institutions, public safety offices, and other employment if credit history is job-related and use is disclosed to applicant or employee. The exceptions to the law include the following circumstances:
New Oregon Law Prohibits Use of Credit History of Job Applicants for Employment Screening: http://www.esrcheck.com/wordpress/2010/04/02/new-oregon-law-prohibits-use-of-credit-history-of-job-applicants-for-employment-screening/.
Oregon Issues New Rules on Use of Credit History for Employment Decisions: http://www.esrcheck.com/wordpress/2010/07/12/oregon-issues-new-rules-on-use-of-credit-history-for-employment-decisions/.
Senate Bill 1045: http://www.leg.state.or.us/10ss1/measpdf/sb1000.dir/sb1045.a.pdf.
Effective July 1, 2012, Vermont Act No. 154 (S. 95) prohibits employers in the state, subject to various exceptions, from using or inquiring into credit reports or credit histories of job applicants and employees in the employment context and further prohibits discriminating against individuals based on their credit information. Vermont is the eighth and most recent state to restrict the use of credit reports by employers, joining California, Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington.
Enacted into law by Governor Peter Shumlin on May 17, 2012, Vermont Act No. 154 (S. 95) pertains to “credit history” that includes any credit information obtained from any third party, not only information contained in a credit report. The Act sets forth exemptions based on the type of employers at issue and the position or responsibilities of applicants or employees. Employers are exempt and may obtain and use credit information if they meet one or more of these conditions:
However, even exempted employers that seek to obtain or act upon the credit information of an applicant or employee are prohibited by the Act from using credit report or credit history as the sole factor in making any employment decision. In addition, the Act requires employers to first obtain the written consent of the employee or applicant to the disclosure of the credit information and must also disclose in writing its reasons for accessing the report. If an employer intends to take an adverse employment action based on any contents of the credit report, the employer must notify the applicant or employee in writing of its reasons for doing so and also offer the subject an opportunity to contest the accuracy of the credit report or credit history.
Vermont to Prohibit Employers from Using Credit Reports for Employment Decisions Starting July 1: http://www.esrcheck.com/wordpress/2012/06/14/vermont-to-prohibit-employers-from-using-credit-reports-for-employment-decisions-starting-july-1/.
Vermont Act No. 154 (S. 95) is available at: http://www.leg.state.vt.us/docs/2012/bills/Passed/S-095.pdf.
Washington passed a law in 2007 amending the Revised Code of Washington (RCW) that stated employers could not obtain a credit report as part of a background check unless the information was substantially job related and the employer’s reasons for the use of such information were disclosed to the consumer in writing.
Under the amended Washington law, employers cannot obtain a credit report as part of a background check unless the information is:
Employers in the state of Washington utilizing employment credit reports needed to change their forms, carefully review any job position where a credit report is requested, and communicate to job applicants the reason a credit report is substantially related to a particular job.
New Restrictions on the Use of Credit Reports: http://www.esrcheck.com/newsletter/archives/June_2007.php#T2.
RCW Chapter 19.182 — Fair Credit Reporting Act: http://apps.leg.wa.gov/RCW/default.aspx?cite=19.182.
RCW 19.182.020 (Consumer report — Furnishing — Procuring): http://apps.leg.wa.gov/rcw/default.aspx?cite=19.182.020.
Articles, Blogs & White Papers about Credit Reports
'Basics of Credit Reports and Background Checks' by ESR founder and CEO Les Rosen: http://www.esrcheck.com/wordpress/2009/08/13/basics-of-credit-reports-and-background-checks/ .
'Credit Reports and Job Hunting' by Les Rosen reprinted from HR.com: http://www.esrcheck.com/articles/Credit-Reports-and-Job-Hunting.php .
Blogs Tagged 'Credit Reports' on ESR News Blog: http://www.esrcheck.com/wordpress/tag/credit-reports/ .
'Use of Credit Reports in Employment Background Screening' - A complimentary Employment Screening Resources (ESR) white paper available for download at: http://www.esrcheck.com/Download/.