Several US States Now have Laws Regulating Use of Credit Reports for Employment Purposes

A number of U.S. states have either passed, or are considering passing, laws regulating credit reports used by employers for employment purposes. Most recently, California Governor Jerry Brown signed Assembly Bill 22 into law that prohibits employers or prospective employers in California, with the exception of certain financial institutions, from obtaining consumer credit reports for employment purposes beginning on January 1, 2012. Here is a summary of the seven states – California, Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington – that currently have laws regulating credit report use by employers.

California

As reported in the ESR News blog ‘California Passes AB 22 Placing Restrictions on Use of Credit Checks by Employers,’ Califorina Assembly Bill 22 (AB 22) will amend Section 1785.20.5 of the Civil Code and add 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:

  • A managerial position;
  • A position in the state Department of Justice;
  • A sworn peace officer or other law enforcement position;
  • A position for which the information contained in the report is required by law to be disclosed or obtained;
  • A position that involves regular access to specified personal information for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment;
  • A position in which the person is or would be a named signatory on the employer’s bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer’s behalf;
  • A position that involves access to confidential or proprietary information; or
  • A position that involves regular access to $10,000 or more of cash.

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.

The full text of Assembly Bill 22 is available at: http://leginfo.ca.gov/pub/11-12/bill/asm/ab_0001-0050/ab_22_bill_20110920_enrolled.pdf.

Connecticut

As reported in the ESR News blog ‘New Connecticut Law Restricts Use of Credit Reports in Employment and Hiring Decisions Effective October 1,’ a law in Connecticut – Senate Bill No. 361 (S.B. 361) – prohibited certain employers from using credit reports in making hiring and employment decisions regarding existing employees or job applicants effective October 1, 2011. The law 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:

  • Is a managerial position that involves setting the direction or control of a business, division, unit or an agency of a business;
  • Involves access to personal or financial information of customers, employees or the employer, other than information customarily provided in a retail transaction;
  • Involves a fiduciary responsibility to the employer, as defined under the law;
  • Provides an expense account or corporate debit or credit card;
  • Provides access to certain confidential or proprietary business information, as defined under the law; or
  • Involves access to the employer’s nonfinancial assets valued at $2,005 or more, including, but not limited to, museum and library collections and to prescription drugs and other pharmaceuticals.

The full text of Senate Bill 361 is available at: http://www.cga.ct.gov/2011/ACT/PA/2011PA-00223-R00SB-00361-PA.htm.

Hawaii

As reported in the ESR News blog ‘Hawaii Latest State to Put Limits on Use of Credit Reports,’ the Hawaiian legislature – over the Governor’s veto – passed a new law effective July 1, 2009 that 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. House Bill 31 SD1 CD1  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.

The full text of House Bill 31 SD1 CD1 is available at: http://www.capitol.hawaii.gov/session2009/bills/HB31_CD1_.pdf.

Illinois

As reported in the ESR News blog ‘New Illinois Law Prohibits Pre-Employment Credit Checks on Most Job Applicants,’ Illinois Governor Pat Quinn signed House Bill 4658 creating the “Employee Credit Privacy Act” which prohibits employers in the state from discriminating based on the credit history of job seekers or employees. The new law – which took effect January 1, 2011 – 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 new law, employers may access credit checks under limited circumstances, including positions that involve:

  • Bonding or security per state or federal law;
  • Unsupervised access to more than $2,500;
  • Signatory power over businesses assets of more than $100;
  • Management and control of the business; and
  • Access to personal, financial or confidential information, trade secrets, or state or national security information.

To full text of the “Employee Credit Privacy Act” (House Bill 4658) is available at: http://e-lobbyist.com/gaits/text/21025.

Maryland

As reported in the ESR News blog ‘Maryland Latest US State to Place Restrictions on Use of Credit Checks by Employers,’ the “Job Applicant Fairness Act” (House Bill 87), which took effect October 1, 2011, 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:

  • Deny employment to a job applicant;
  • Discharge an employee;
  • Decide compensation; or
  • Evaluate other terms and conditions of employment.

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:

  • Jobs such as managerial positions involving handling money or confidential duties;
  • Employees with expense accounts or corporate credit cards; and
  • Employees with access to confidential business information.

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.

The full text of the “Job Applicant Fairness Act” (House Bill 87) is available at: http://mlis.state.md.us/2011rs/chapters_noln/Ch_29_hb0087T.pdf.

Oregon

As reported in the ESR News blogs ‘New Oregon Law Prohibits Use of Credit History of Job Applicants for Employment Screening’ and ‘Oregon Issues New Rules on Use of Credit History for Employment Decisions,’ Oregon Senate Bill (SB) 1045 – signed into law by Governor Ted Kulongoski 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:

  • Employers that are federally insured banks or credit unions;
  • Employers that are required by state or federal law to use Individual credit history for employment purposes;
  • The employment of a public safety officer, or
  • Employers that can demonstrate that the information in a credit report is substantially job-related AND the employer’s reasons for the use of such information are disclosed to the employee or prospective employee in writing

To full text of Senate Bill 1045 is available at: http://www.leg.state.or.us/10ss1/measpdf/sb1000.dir/sb1045.a.pdf.

Washington

As reported in the June 2007 ESR Newsletter and Legal Update story ‘New Restrictions on the Use of Credit Reports,’ Washington passed a law in 2007 stating 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:

  • Substantially job related and the employer’s reasons for the use of such information are disclosed to the consumer in writing; or
  • Required by law.

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.

The full text of ‘Chapter 19.182 Revised Code of Washington (RCW) – Fair Credit Reporting Act” is available at: http://apps.leg.wa.gov/RCW/default.aspx?cite=19.182. The full text of “RCW 19.182.020 (Consumer report — Furnishing — Procuring)” is available at: http://apps.leg.wa.gov/rcw/default.aspx?cite=19.182.020

Employment Screening Resources (ESR) – a nationwide background check company headquartered in the San Francisco area and accredited by The National Association of Professional Background Screeners (NAPBS®) – will continue to monitor the laws regulating credit report use for employment purposes and post updates on the ‘States with Laws Regulating Credit Reports for Employment’ page on the ESR website at:
http://www.esrcheck.com/States-with-Laws-Regulating-Credit-Reports-for-Employment.php.

All ESR News blogs tagged ‘Credit Reports’ are available at http://www.esrcheck.com/wordpress/tag/credit-reports/.

About Employment Screening Resources (ESR):
Founded in 1997 in the San Francisco, CA area,
Employment Screening Resources (ESR) literally wrote the book on background screening with “The Safe Hiring Manual” by ESR Founder and CEO Lester Rosen. ESR streamlines the screening process and reduces administrative overhead though its proprietary technology solutions.  ESR is accredited by The National Association of Professional Background Screeners (NAPBS®), a distinction held by less than two percent of all screening firms. This important recognition was achieved by successfully passing a third party audit demonstrating compliance with the NAPBS Background Screening Agency Accreditation Program. By choosing an accredited screening firm like ESR, employers know they have selected an agency that meets the highest industry standards. For more information about ESR, visit http://www.ESRcheck.com.