Tag Archives: credit reports

Use of Credit Reports and Criminal Records for Employment Screening comes under Scrutiny

By Thomas Ahearn, Employment Screening Resources (ESR) News Editor

An article in the February 2011 issue of the Society for Human Resource Management’s (SHRM) HR Magazine‘Close Up On Screening’ – describes how employers are scrambling to adjust to changes in the myriad of state and federal laws that govern pre-employment background screening due to increased scrutiny by legislators and policy enforcers on the use of credit reports and criminal records in hiring decisions.

For examples, Illinois recently became the fourth state — after Hawaii, Oregon, and Washington — to restrict the use of credit histories in hiring decisions, while Massachusetts became the second state, in addition to Hawaii, to prohibit private employers from asking about criminal records of job applicants on initial written job applications.

However, contrary to public opinion, a 2010 survey from SHRM – ‘Conducting Credit Background Checks’ – showed credit histories were used sparingly and wisely in hiring decisions.

“The perception that employers are ordering massive amounts of credit reports is nothing like the truth,” said Lester Rosen, President of San Francisco-area background check provider Employment Screening Resources (ESR), who was quoted in the HR Magazine article.

According to the SHRM survey on credit background checks, when respondents were asked if their organization or an agency hired by their organization conducted credit background checks for any job candidates by reviewing their credit reports:

  • 47 percent responded they performed credit background checks on selected job candidates.
  • 40 percent responded they did not perform credit background checks on any job candidates.
  • 13 percent responded they performed credit background checks on all job candidates.

Regarding which categories of job candidates that organizations conducted credit background checks on, the SHRM survey revealed that 91 percent of “job candidates for positions with fiduciary and financial responsibility” underwent credit background checks.

As for restrictions on criminal records, the SHRM article indicates at least two dozen cities and counties and five states have narrowed questions on their job applications to cover only felony convictions or have stopped asking about criminal history entirely and have “banned the box,” a reference to removing the boxes on applications that job applicants must check if they have even been convicted of a crime. 

“With ‘ban the box’, applicants can be considered without pre-judging,” said Rosen, the author of ‘The Safe Hiring Manual – The Complete Guide to Keeping Criminals, Terrorists, and Imposters Out of Your Workplace,’ a comprehensive guide to background checks. “From a government point of view, it makes sense to get people back to work and to avoid the extra costs of social services. Private employers prefer to ask upfront.”

Furthermore, while employers conduct criminal background checks to guarantee safety in the workplace and to avoid negligent hiring lawsuits, they may attract attention from the U.S. Equal Employment Opportunity Commission (EEOC) if they are not careful in doing so. The article noted that while procedural consistency is important throughout an organization, criteria consistency is important within job groups.

“Not all janitors are background screened the way you screen accountants, but janitors should be screened consistently with janitors,” Rosen explained in the article. “Employers get in trouble when they engage in automated decision-making. There always should be a human review to make sure you’re making the right decision.”

Rosen added that while many employers know the Fair Credit Reporting Act (FCRA) contains procedures for conducting credit background checks, some are unaware the FCRA also covers criminal background checks and offers specific “adverse action” procedures an employer must follow if a background check results in a denial of employment for a job applicant.

As a result, many employers are turning to an outsourced background screening and safe hiring partner to establish protocols and consistent practices while also helping to eliminate inappropriate use of screening results.

“A good background-screening partner makes sure the employer is in compliance with the act and other laws, abides by adverse action rules, conducts consistent checks within job groups, and follows EEOC guidelines for using criminal reports,” Rosen said.

To learn more about background checks, visit the Employment Screening Resources (ESR) website at http://www.ESRcheck.com and read more about ‘credit reports’ and ‘criminal records’ on the ESR News Blog

Founded in 1996 in the San Francisco area, Employment Screening Resources (ESR) wrote the book on background checks with ‘The Safe Hiring Manual’ by ESR founder and President Lester Rosen and is accredited by The National Association of Professional Background Screeners (NAPBS®) . To learn more about Employment Screening Resources, visit http://www.ESRcheck.com or contact Jared Callahan, ESR Director of Client Relations, at 415.898.0044 or jcallahan@ESRcheck.com.

Sources:
http://www.shrm.org/Publications/hrmagazine/EditorialContent/2011/0211/Pages/0211roberts.aspx
http://www.shrm.org/Research/SurveyFindings/Articles/Pages/BackgroundChecking.aspx

Bill Limiting Credit Checks of Job Applicants for Employment Screening Reintroduced in Congress

A bill that would limit the use of credit checks of job applicants in employment screening has been reintroduced into Congress by U.S. Rep. Steve Cohen (D-TN).

As originally written, the ‘Equal Employment for All Act’ would amend the Fair Credit Reporting Act (FCRA) to prohibit the use of consumer credit checks against prospective employees and existing employees as a means of making adverse employment decisions, with an exception for employers seeking applicants in national security or positions with major financial responsibilities.

Congressman Cohen – who wrote the same bill in the last Congress but it was never voted on – noted in a news report that the recession has led some job applicants into debt and credit checks can keep them unemployed. He also noted the Equal Employment Opportunity Commission (EEOC) has suggested such use of credit checks may affect women and minorities disproportionately.

A 2010 survey from the Society for Human Resource Management (SHRM) on the use of credit reports for employment screening revealed that:

  • 13 percent of employers surveyed conducted credit checks on all job candidates.
  • 40 percent of employers did not conduct any credit checks on job candidates.
  • 47 percent of employers considered credit checks for candidates of selected jobs.
  • 60 percent of employers overall ran credit checks on at least some applicants.

Credit checks for employment purposes have become a very controversial subject. Job applicants looking for work in a tough economy are caught in a classic “Catch-22” situation where they have bad credit because they cannot get a job but cannot get a job because they have bad credit.

Employment Screening Resources (ESR), a leading provider of background checks accredited by the National Association of Professional Background Screeners (NAPBS), believes credit checks are just one of many factors – including education, experience, references, and past criminal history – that employers use to find qualified job applicants, employers should approach with caution when using them for employment screening, and articulate a clear rationale as to why a credit check is related to a particular job. Employers should also be aware of the potential for errors in credit reports.

The question of whether use of credit checks in employment screening is discriminatory is so controversial that the use of credit reports for employment screening is the number one background screening trend for 2011 as chosen by Employment Screening Resources founder and President Lester Rosen. For a list of all trends in ESR’s ‘Top Ten Trends in Employment Screening’ for 2011, visit: http://www.esrcheck.com/Top-Ten-Trends-In-Background-Screening-2011.php.

For more information about credit background checks, visit Employment Screening Resources (ESR) at http://www.ESRcheck.com.

Founded in 1996 in the San Francisco area, Employment Screening Resources (ESR) wrote the book on background checks with ‘The Safe Hiring Manual’ by ESR founder and President Lester Rosen and is accredited by The National Association of Professional Background Screeners (NAPBS®) . To learn more about Employment Screening Resources, visit http://www.ESRcheck.com or contact Jared Callahan, ESR Director of Client Relations, at 415.898.0044 or jcallahan@ESRcheck.com.

Sources:
http://www.govtrack.us/congress/bill.xpd?bill=h111-3149
http://www.commercialappeal.com/news/2011/jan/20/credit-check-bill-is-refiled/

Employment Screening Resources Releases Fourth Annual List of Background Check Developments

Employment Screening Resources (ESR) – a nationwide background check provider to employers accredited by the National Association of Professional Background Screeners (NAPBS®) – has released its ‘Fourth Annual Top Ten Trends in Background Screening for 2011’ as predicted by ESR founder, President, and safe hiring expert Lester Rosen.

“For the fourth consecutive year, Employment Screening Resources has identified new trends that are starting to make a difference as the employment background screening industry matures,” explains Rosen, an Attorney at Law and author of ‘The Safe Hiring Manual,’ the first comprehensive guide for employment background checks. “For the second year in a row, the number one trend on the list is the increased focus on whether the use of credit reports by employers during employment screening is discriminatory.”

An article detailing each individual trend was published on the Employment Screening Resources website in ascending order beginning in December 2010. Below is a complete listing of the ESR ‘Fourth Annual Top Ten Trends in Background Screening for 2011’:

Rosen, a frequent speaker on safe hiring issues, selected each trend after closely reviewing background screening news and developments from various sources, a practice that helped him predict future background screening industry trends in the past.

For a related article, visit: http://www.esrcheck.com/wordpress/2011/01/13/controversial-and-discriminatory-use-of-job-applicant-credit-reports-by-employers-tops-background-screening-trends-list-for-2011/.

For more information on background screening or to purchase background checks, visit Employment Screening Resources (ESR) at http://www.ESRcheck.com.

Founded in 1996 in the San Francisco area, Employment Screening Resources (ESR) wrote the book on background checks with ‘The Safe Hiring Manual’ by ESR founder and President Lester Rosen and is accredited by The National Association of Professional Background Screeners (NAPBS®) . To learn more about Employment Screening Resources, visit http://www.ESRcheck.com or contact Jared Callahan, ESR Director of Client Relations, at 415.898.0044 or jcallahan@ESRcheck.com.

Controversial and Discriminatory Use of Job Applicant Credit Reports by Employers Tops Background Screening Trends List for 2011

By Lester Rosen, Employment Screening Resources (ESR) President & Thomas Ahearn, ESR News Editor

For the past four years, Employment Screening Resources (ESR) – a leading background check provider to employers accredited by the National Association of Professional Background Screeners (NAPBS®) – has compiled a “Top Ten Trends in Background Screening” list of emerging and influential trends in employment background screening predicted by ESR founder and President Lester Rosen, an Attorney at Law and author of ‘The Safe Hiring Manual,’ the first comprehensive guide for background screening.

For the Fourth Annual ‘Top Ten Trends in Background Screening’ for 2011, Rosen chose the controversial, and potentially discriminatory, practice of employers checking credit reports of job applicants as the number one background screening trend for the year ahead. Articles detailing the top background screening trends for 2011 were published on ESR News starting in December 2010. Below is a list of the background screening trends with a brief summary and links to the full article:

A great deal of misinformation about the basics of credit reports, background checks, and job hunting exists in the current economic climate. The topic has been in the news and states have passed laws or are considering laws to restrict the use of credit reports and employment. Furthermore, the U.S. Equal Employment Opportunity Commission (EEOC) is looking closely at this area and has filed lawsuits alleging discriminatory use.

Most employers are not using credit reports to find ways to eliminate people from jobs. A background check that includes a credit report is usually run only after an employer has gone through the time, cost, and effort to find the right candidate. Employers initiate background checks because they are interested in hiring the applicant and are conducting due diligence to make sure there is no reason not to hire. Under the rules of the federal Fair Credit Reporting Act (FCRA), a credit report is only obtained after the applicant has given consent and after a legally required disclosure has been given. If the employer utilizes the credit report in any way not to hire, applicants are entitled to a copy of their credit report, a pre-adverse action notice, as well as a statement of their rights. Before any employment decision becomes final, applicants also have the right to challenge the credit report before any denial of employment is made final.

However, employers should approach credit reports with caution when using them for employment background checks, and must articulate a clear rationale as to why a credit report is related to a particular job. Employers should also be aware of the potential for errors in credit reports. A debt may be reported incorrectly for various reasons or the applicant could be the victim of identify theft which can also lead to incorrect data. In addition, negative entries may well not be a valid predictor of job performance especially since many job applicants have faced a long period of unemployment that may lead to larger debts.  An overly broad use of credit reports by employers could lead to claims of discrimination from a disparate impact on protected groups such as Blacks and Latinos. The idea that credit reports can be used in a discriminatory manner in the eyes of the EEOC means employers will continue to face controversy with discrimination over using credit reports for employment screening.

To read the full article on Trend #1, please visit: http://www.esrcheck.com/wordpress/2011/01/11/controversy-over-whether-employers-using-credit-reports-for-employment-screening-is-discriminatory-increases/.

Employers have become increasingly aware of the importance of knowing if a job applicant has a criminal record since they have a legal duty to make reasonable inquiries about who they hire in order to provide a safe workplace. An employer who hires a person with a criminal record can be found liable for negligent hiring if the hiring decision results in harm and could have been avoided by a simple criminal record check. Checking criminal records demonstrates due diligence and is also an important preventative measure to protect against workplace violence. One of the most effective tools an employer has is the use of an employment application form in the hiring process which enables employers to directly ask applicants if they have a criminal record. The advantage is that an employer can use a well worded application form to discourage applicants with something to hide while also encouraging applicants to be open and honest regarding questions about past criminal convictions.

However, the issue of whether employers can use a job application to ask about a job applicant’s criminal record is becoming more complicated. Many states, counties, and local governments have joined the “ban the box” movement removing the “box” job applicants are asked to check next to the question asking about past criminal convictions. In addition, more employers are facing lawsuits accusing them of violating Title VII of the Civil Rights Act of 1964 by rejecting or firing qualified individuals with criminal records even when the criminal history has no bearing on the ability to perform their job. Due to these factors, questions about criminal records of job applicants are becoming much more difficult for employers to ask.

To read the full article on Trend #2, please visit: http://www.esrcheck.com/wordpress/2011/01/06/questions-about-criminal-records-of-job-applicants-become-more-difficult-for-employers-to-ask/.

According to an age old platitude, “If something looks too good to be true, it probably is,” so employers should be wary of fast and cheap online criminal background checks that promise accurate and legal information on job applicants at the click of a mouse or the touch of a screen. The need for accurate and reliable information should be obvious to anyone dealing with background checks. Even so, numerous internet sites have sprung up recently promising cheap, almost instant background checks that deliver criminal information to anyone, anywhere, and in seconds. These sites utilize a so-called “national criminal database” and vendors of such databases typically claim to have compiled millions of records from every state so users can know instantly if someone is a criminal at a very low price.

Although a multi-state records database can be a powerful tool when used by a qualified employment screening firm as part of an overall background check, employers who think they are getting a real criminal background check can be in for a rude awaking when they discover that such searches are far from the real thing. Applicants with criminal records can easily be missed, while people without records can be incorrectly identified as criminals. Both results carry negative financial and legal implications for employers. Employers using these databases for employment purposes need to understand the limitations and legal exposure associated with using them or risk finding themselves embroiled in litigation. Employers are quickly discovering that fast and cheap online background checks using criminal databases not always accurate or legal.

To read the full article on Trend #3, please visit: http://www.esrcheck.com/wordpress/2011/01/03/employers-discover-fast-and-cheap-online-background-checks-using-criminal-databases-not-always-accurate-or-legal/.

Many employers do not realize they potentially face the same exposure from vendors, independent contractors, and temporary employees from staffing firms as they do from their own full-time employees when it comes to negligent hiring lawsuits. Risk management controls of employers often do not take into account the “need to know” through background checks of workers who are not on their payroll but are on their premises, with access to computer systems, clients, co-workers, assets, and the general public. The law is absolutely clear that if a vendor, independent contractor, or temporary worker harms a member of the public or a co-worker, the employer can be just as liable as if the person were on the employer’s full-time payroll. All of the rules of due diligence – which include background checks – apply with equal force to vendors, temporary workers, or independent contractors. A business can be liable if, in the exercise of reasonable care, the business should have known that a vendor, temporary worker, or independent contractor was dangerous, unqualified, or otherwise unfit for employment. An employer has an absolute obligation to exercise due diligence not only in whom they hire on payroll, but in whom they allow on premises to perform work. Employers can also be held liable under the legal doctrine of “co-employment,” which means that even though the worker is on someone else’s payroll, the business that uses and supervisees the worker can still be held liable for any misconduct.

However, many employers have found out the hard way that workers from a vendor or staffing firm or hired as an independent contractor without proper background checks can also cause damage. When an employer is the victim of theft, embezzlement, or resume fraud, the harm is just as bad regardless of whether the worker is on their payroll or someone else’s payroll. No employer would dream of walking down the street and handing the keys to the business to a total stranger, yet many employers across America essentially do exactly that everyday when engaging the services of vendors and temporary workers with proper background checks. So-called “temporary” workers can cause permanent problems for employers without the background checks that are performed on full-time employees. As hiring of temporary workers increases – and since the hiring of temporary workers is usually an indication of hiring full-time workers in the future – employers will become increasingly more concerned with background checks of temporary workers in the coming year.

To read the full article on Trend #4, please visit: http://www.esrcheck.com/wordpress/2010/12/28/background-checks-of-temporary-workers-cause-for-concern-for-employers-as-hiring-increases/

In 2011, due to the mobility of workers across international borders in a global economy making it no longer adequate to conduct background screening checks just in the United States, a major trend will be the necessity of international background screening since an increasing number of workers will have spent part of their professional careers abroad. Employers in the U.S. have long recognized that conducting due diligence on new hires with background screening is a mission critical task that can help them avoid being the subject of negligent hiring lawsuits if they hire someone that they should have known – through the exercise of due diligence – was dangerous, unfit or unqualified.

However, with the increased mobility of workers across international borders it is no longer adequate to conduct these background screening checks just in the United States. Background screening also must be done internationally since an increasing number of workers have spent part of their professional careers abroad. The number of foreign countries from which U.S. employers may seek information about applicants with international background screening is expansive, and includes Australia, Brazil, Canada, Chile, China, France, Germany, India, Ireland, Israel, Japan, Malaysia, Mexico, Nigeria, Pakistan, Philippines, Russia, Singapore, South Africa, and the United Kingdom (U.K.).

To read the full article on Trend #5, please visit: http://www.esrcheck.com/wordpress/2010/12/23/international-background-screening-more-necessary-due-to-mobility-of-workers-in-global-economy/.  

A background screening trend that recently emerged where employers used social network sites such as Facebook – the most popular social networking site with over 500 million active users worldwide – to run ‘Social Network Background Checks’ on job candidates should become even more prevalent in 2011, and increase the legal risks for employers. No discussion about background screening these days is complete without an analysis of how the Internet is used for hiring. From social network sites such as Facebook and Twitter to blogs, videos on YouTube, and business connection sites like LinkedIn, employers focus with laser-like intensity on how to use the Internet for background screening job candidates. What is sometimes overlooked in the rush to use the Internet for background screening is the one question employers need to ask: What are the legal risks in using the Internet for hiring? The answer involves issues of discrimination, authenticity, and privacy. If employers insist on using social network sites for background screening, then they must realize that much of the ‘new media’ available to them for background screening is still covered by current employment regulations.

To read the full article on Trend #6, please visit: http://www.esrcheck.com/wordpress/2010/12/21/esr-background-screening-trend-6-for-2011-using-social-network-sites-such-as-facebook-to-screen-job-candidates-increases-legal-risk-for-employers/.   

A background screening trend that gained much attention in 2010 that will continue to do so in 2011 will be increased workplace violence prevention education to help protect both employers and employees. While the term “workplace violence” is appropriate for a quick definition or diagnosis of a problem, fully defining all aspects of “workplace violence” can be nebulous at best. Many employers loosely define workplace violence as: Assaults, other violent acts, or threats which occur in or are related to the workplace and entail a substantial risk of physical or emotional harm to individuals, or damage to company resources or capabilities. The Occupational Health and Safety Administration (OHSA) defines “workplace violence” as “violence or the threat of violence against workers” that involves any physical assault, threatening behavior, or verbal abuse occurring in, or related to, the workplace, and includes behaviors ranging in aggressiveness from verbal harassment to murder. According to the U.S. Bureau of Labor Statistics (BLS), there were 521 workplace killings in the United States in 2009, 420 of them committed by gunfire.

To read the full article on Trend #7, please visit: http://www.esrcheck.com/wordpress/2010/12/16/esr-background-screening-trend-7-for-2011-more-workplace-violence-prevention-education-helps-protect-employers-and-employees/.

A new background screening trend emerging in 2011 will be the increased concern over the “offshoring” of Personally Identifiable Information (PII) of U.S. consumers. A recently signed California law appears to be the first in the United States to regulate the “offshoring” of Personally Identifiable Information (PII) of U.S. consumers collected for background checks, a controversial practice where private data of U.S. citizens – such as names, dates of birth, addresses, and Social Security numbers (SSNs) – is sent overseas, outside the United States and its territories, and beyond the reach of U.S. privacy laws. In September 2010, Governor Arnold Schwarzenegger signed into law California Senate Bill 909 (SB 909), which addresses the issue of personal information being sent offshore. SB 909 – which takes effect January 1, 2012 to allow time for background check firms to provide new releases to employers or modify online language – amends the California Investigative Consumer Reporting Agencies Act (ICRA) that regulates background checks in California and requires that a consumer must be notified as part of a disclosure before the background check of the web address for “information about the investigative reporting agency’s privacy practices, including whether the consumer’s personal information will be sent outside the United States or its territories.”

To read the full article on Trend #8, please visit: http://www.esrcheck.com/wordpress/2010/12/14/esr-background-screening-trend-8-for-2011-increased-privacy-concerns-over-offshoring-of-personally-identifiable-information-pii/.

An October 2010 press release from the Department of Homeland Security (DHS) announced record-breaking immigration enforcement statistics achieved under the Obama administration, which included issuing more financial sanctions on employers who hired unauthorized workers than during the entire previous Bush administration. Since January 2009, when President Barack Obama took office, U.S. Immigration and Customs Enforcement (ICE) – the principal investigative arm of DHS – has audited more than 3,200 employers suspected of hiring workers not legally eligible to work in the U.S., debarred 225 companies and individuals, and imposed approximately $50 million in financial sanctions, according to the DHS. A summary of fines and penalties from ICE reveals that this surge in enforcement of a legal U.S. workforce included a 500 percent increase in penalties from worksite enforcement actions (over $5 million), a nearly two-fold increase in I-9 audits (2,200), a record-breaking 180 criminal prosecutions of employers, and the debarring of more than 97 businesses, compared to 30 last fiscal year, with average fines exceeding $110,000. Due in large part to increased scrutiny on employers from ICE through I-9 audits – where employee information on Employment Eligibility Verification Forms (“I-9 forms”) is checked for accuracy by Government agents – penalties from worksite enforcement inspections have increased recently.

To read the full article on Trend #9, please visit: http://www.esrcheck.com/wordpress/2010/12/09/esr-background-screening-trend-9-for-2011-e-verify-and-i-9-audits-help-government-find-employers-with-illegal-workers/.

Before this year, employers were largely on their own when selecting a background screening firm. With hundreds upon hundreds of background screening firms to choose from, employers faced a bewildering landscape of competing claims that touted any number of bells and whistles that made it hard to distinguish one background screening provider form another. Some background screening firms had ISO (International Organization for Standardization) certification, but as noted in the article “Backgrounds to the Foreground” in the December 2010 issue of HR Magazine, the ISO designation is not specific to background screening and does not guarantee quality of products or services. Employers were also faced with “commercial” rankings published by private “for-profit” publications, which only added to the confusion. The problem for employers is that background screening is a critical function subject to intense legal regulation, and so the stakes are high. In 2010, the National Association of Professional Background Screeners (NAPBS®) Background Screening Credentialing Council (BSCC) took significant steps towards solving this perplexing problem with the creation of the Background Screening Agency Accreditation Program (BSAAP) that covers all areas related to the background screening process and, most important, is professional and objective and not based upon any commercial considerations. The BSAAP advances professionalism in the background screening industry through the promotion of best practices, awareness of legal compliance, and development of standards that protect consumers.

To read the full article on Trend #10, please visit: http://www.esrcheck.com/wordpress/2010/12/06/employment-screening-resources-top-ten-trends-in-background-screening-for-2011-no-10-new-accreditation-standards-help-employers-select-background-screening-firms/.

The Employment Screening Resources (ESR) Fourth Annual ‘Top Ten Trends in Background Screening’ for 2011 is available at: http://www.esrcheck.com/Top-Ten-Trends-In-Background-Screening-2011.php.

For more information on background screening or to purchase background checks, visit Employment Screening Resources (ESR) at http://www.ESRcheck.com.

Founded in 1996 in the San Francisco Bay area, Employment Screening Resources (ESR) is the company that wrote the book on background checks with ‘The Safe Hiring Manual’ by ESR founder and President Lester Rosen. Employment Screening Resources is accredited by The National Association of Professional Background Screeners (NAPBS®) Background Screening Credentialing Council (BSCC) for proving compliance with the Background Screening Agency Accreditation Program (BSAAP). ESR was the third U.S. background check firm to be ‘Safe Harbor’ Certified for data privacy protection. To learn more about ESR’s Leadership, Resources, and Solutions, visit http://www.ESRcheck.com or contact Jared Callahan, ESR Director of Client Relations, at 415.898.0044 or jcallahan@ESRcheck.com.

Controversy over Whether Employers Using Credit Reports for Employment Screening is Discriminatory Increases

By Lester Rosen, Employment Screening Resources (ESR) President & Thomas Ahearn, ESR News Editor

A great deal of misinformation about the basics of credit reports, background checks, and job hunting exists in the current economic climate. Most employers are not using credit reports to find ways to eliminate people from jobs. A background check that includes a credit report is usually run only after an employer has gone through the time, cost, and effort to find the right candidate. Employers initiate background checks because they are interested in hiring the applicant and are conducting due diligence to make sure there is no reason not to hire. Under the rules of the federal Fair Credit Reporting Act (FCRA), a credit report is only obtained after the applicant has given consent and after a legally required disclosure has been given. If the employer utilizes the credit report in any way not to hire, applicants are entitled to a copy of their credit report, a pre-adverse action notice, as well as a statement of their rights. Before any employment decision becomes final, applicants also have the right to challenge the credit report before any denial of employment is made final.

However, employers should approach credit reports with caution when using them for employment background checks, and must articulate a clear rationale as to why a credit report is related to a particular job. Employers should also be aware of the potential for errors in credit reports. A debt may be reported incorrectly for various reasons or the applicant could be the victim of identify theft which can also lead to incorrect data. In addition, negative entries may well not be a valid predictor of job performance especially since many job applicants have faced a long period of unemployment that may lead to larger debts.  An overly broad use of credit reports by employers could lead to claims of discrimination from a disparate impact on protected groups such as Blacks and Latinos.

The idea that credit reports can be used in a discriminatory manner in the eyes of the U.S. Equal Employment Opportunity Commission (EEOC) means employers will continue to face controversy with discrimination over using credit reports for employment screening.

This is Trend #1 in Employment Screening Resources (ESR) Fourth Annual ‘Top Ten Trends in Background Screening’ for 2011.

Credit checks for employment purposes have become a very controversial subject. Job applicants look for work in a tough economy are caught in a “Catch-22” situation where they have bad credit because they cannot get a job but cannot get a job because they have bad credit. As a result, the EEOC held a public Commission meeting in October 2010 to hear testimony on the growing use of credit histories of job applicants as selection criteria during employment background screening to see if the practice is discriminatory. At that meeting, a representative of the Society for Human Resource Management (SHRM) told the EEOC that the federal government should not eliminate an employer’s use of credit histories to help make decisions about job candidates since credit history is just one of many factors – including education, experience, references, and past criminal history – that employers use to narrow the job applicant pool to the most qualified. Data from a 2010 SHRM survey on the use of credit reports for employment screening revealed that:

  • 13 percent of employers surveyed conducted credit checks on all job candidates.
  • 40 percent of employers did not conduct any credit checks on job candidates.
  • 47 percent of employers considered credit history for candidates of selected jobs.
  • 91 percent of employers that conducted credit checks did so for jobs of financial or fiduciary responsibility such as handling cash, banking, and accounting.

Overall, SHRM found that 60 percent of employers ran a credit check on at least some applicants, an increase from the 42 percent in 2006 and 25 percent in 1998. The EEOC heard public comment from SHRM and others to determine the extent of the practice of using credit checks during the background screening of job candidates, the effectiveness of its intended purpose, and its potential impact on different populations. The EEOC works to ensure all U.S. workplaces are made free of all barriers to equal opportunity. For more information, visit http://www.eeoc.gov/eeoc/meetings/10-20-10/index.cfm.

For employers, hiring an applicant that will handle money or assets, make fiduciary decisions, or has access to private data without running a credit report could result in allegations of negligent hiring if embezzlement or identity theft occurs and a credit report as part of a background check would have lead to relevant information. It is an urban myth that employers receive credit scores of the applicant. Employment credit reports are much different than credit reports used for lending and do not contain a credit score since there is no evidence of a connection between credit scores and successful employment. 

In addition to the federal regulations of the FCRA and EEOC, some states are considering passing, or have passed, legislation to restrict the use of credit reports for employment purposes. For example, effective January 3, 2011, the State of Illinois restricts employers from using credit reports for employment purposes. Under Illinois House Bill 4658 ‘The Employee Credit Privacy Act,’ employers in Illinois may not use a person’s credit history to determine employment, recruiting, discharge, or compensation. As reported on ESR News, other examples of stories about limiting the use of credit reports for employment purposes include:

Employers argue that credit checks during employment screening are done responsibly, and are not barriers to employment. They may check credit history during background checks to help them determine whether a prospective employee is a possible risk to the financial health of a business or to its customers. Prohibiting credit checks in screening makes employers, other employees, and customers vulnerable to fraud and identity theft.

Unfortunately, personal financial health can be an indictor of potential employee fraud. The Association of Certified Fraud Examiners (ACFE) reviewed occupational fraud between 2006 and 2008, and found that the top two “red flag” warnings exhibited by perpetrators of fraud leading up to the crime were instances of living beyond their financial means (39 percent of cases) or experiencing financial difficulties (34 percent of cases). To learn more, visit http://www.acfe.com/occupational-fraud/occupational-fraud.asp.

While it is wrong to say all financial difficulties lead to fraud, some employers believe it is also wrong to undercut fraud prevention by outlawing the use of credit report information that may show a correlation between past behavior and future fraud. Credit checks of potential employees protect companies – particularly small businesses – from fraud. According to ACFE, the median loss suffered by organizations with fewer than 100 employees was $190,000 per incident, higher than median losses in large organizations. Overall, employee theft accounted for over $15 billion in losses annually, with companies losing a median of 5 percent of their annual revenue to employee fraud.

Because many myths surround credit reports and employment and to get to the bottom of how credit reports are really being used, Lester Rosen, founder and President of Employment Screening Resources (ESR), recently commented about credit reports of job applicants being used for employment purposes in a San Francisco area blog:

  • Employers don’t randomly access credit reports from all job applicants. They only do so for those who are solid candidates.
  • If they are pulling a credit report, congratulations! They are doing a background check, and that is good news, as they are seriously considering the applicant for the position. They won’t run it before the applicant is a finalist.
  • Credit reports aren’t checked for all occupations or industries. Most employers are looking at credit reports for people applying for positions that are clearly related to finance or have access to cash or credit. They usually don’t access credit reports for people applying for minimum wage jobs.
  • The only way an employer can pull an applicant’s credit report is with the applicant’s permission. Therefore, if the employer asks, the applicant should head over to the human resources department and explain his or her particular situation.
  • A potential boss does not have access to the same type of reports that lenders do. The credit reports employers can see never include credit scores or list dates of birth. All they can view is an applicant’s credit history.
  • If applicants are concerned about how these credit report pulls may harm their credit report further, they can relax. Unlike when a prospective creditor checks it, no “inquiry” will be listed.

As for the real impact of a job applicant’s credit damage, Rosen recommends in the blog that they should not worry about even that too much. “Our experience is that employers are very sensitive to the fact that credit reports are not perfect. And everyone in the world knows there is a recession, and employers take that into consideration,” says Rosen. “It’s a misconception that people are being blacklisted because of their credit reports. However, if the employer does make an adverse decision based on your report, you have a right to know about it and get a copy of the report they used.”

Another article quoted Rosen as saying employers are “looking at the debt level compared to the potential income from the job” and added that “if someone is under water financially as shown by the credit report, the thought is perhaps there could be a motive to embezzle or steal.” However, while Rosen says credit checks are one method employers may use to hire honest and trustworthy employees that also provide some legal cover if that employee turns out to be dishonest, he does not encourage routine credit checks on all candidates since credit checks often contain errors and can feel like an invasion of privacy to applicants. Rosen’s advice for employers is to limit credit checks to relevant positions such as those that involve money. In fact, with many states recently passing laws limiting the use of credit checks for employment purposes, employers need to be careful when, to whom, and how they perform credit checks on prospective job applicants.

However, job applicants and the EEOC are taking matters into their own hands regarding use of credit reports during background checks. Workplace discrimination charge filings with the federal agency nationwide rose to an unprecedented level of 99,922 during fiscal year 2010, according to an EEOC press release. In response to seeing an increase in claims of discrimination based upon criminal records and credit reports, the EEOC began the E-RACE (Eradicating Racism And Colorism from Employment) Initiative. Most recently, the EEOC filed a nationwide hiring discrimination lawsuit against a nationwide provider of postsecondary education charging the company engaged in a pattern of unlawful discrimination by refusing to hire a class of black job applicants nationwide by rejecting them based on their credit history, a practice that has an unlawful discriminatory impact because of race and is neither job-related nor justified by business necessity. As a result of these practices, the company has violated Title VII of the Civil Rights Act of 1964. To read the EEOC press release, visit http://eeoc.gov/eeoc/newsroom/release/12-21-10a.cfm.

Another federal agency, the Federal Trade Commission (FTC), issued a notice in May 2010 explaining ‘Credit Reports and Employment Background Checks’ to consumers who have applied for jobs. To see the FTC notice, visit http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre36.pdf. The FTC enforces the Fair Credit Reporting Act (FCRA), a law that protects the privacy and accuracy of the information in a credit report. The FCRA also spells out the rights of job applicants and the responsibilities of employers when using credit reports and other background check information to assess an application for employment. The FTC warns that there are legal consequences for employers who don’t comply with the FCRA if they:

  • Fail to get an applicant’s okay before getting a copy of their credit report or background check report;
  • Fail to provide the appropriate disclosures in a timely way; or
  • Fail to provide adverse action notices to unsuccessful job applicants.

To help both employers and job applicants better understand use of credit reports during background checks Rosen has written articles on using credit reports during background checks:

Employment Screening Resources (ESR) also co-authorized a white paper with LexisNexis, ‘The Use of Credit Reports in Employment Background Screening – An Overview for Job Applicants,’ on the protections applicants have for credit reports available at: http://www.napbs.com/files/public/Consumer_Education/Credit_Reports_for_Background_Screening.pdf

ESR also provides information – at no charge – to job applicants on background checks and credit check reports can help job applicants navigate the background check process and maximize their chance at employment. The information is available on the ESR ‘Applicant Resources’ page at: http://www.esrcheck.com/Applicant-Resources.php.

Whether the use of credit checks for employment purposes is discriminatory to certain job applicants – which ESR also named Trend #1 in its Third Annual Top Ten Trends in the Background Screening Industry for 2010 – is a question that will be asked as long as employers run credit checks on job applicants with money troubles. For more information about the use of credit reports during background checks, please visit http://www.esrcheck.com/wordpress/tag/credit-reports/.

To read an extended article – Is It Discriminatory For Employers To Use Credit Reports for Employment Screening? – on the subject, visit http://www.esrcheck.com/articles/Is-It-Discriminatory-for-Employers-to-Use-Credit-Reports-for-Employment-Screening.php.

Employment Screening Resources (ESR) is releasing the ESR Fourth Annual ‘Top Ten Trends in Pre-Employment Background Screening’ for 2011 throughout December. This is the First of the Top Ten Trends ESR will be tracking in 2011. To see an updated list of ESR’s ‘Top Ten Trends in Pre-Employment Background Screening’ for 2011, visit: http://www.esrcheck.com/Top-Ten-Trends-In-Background-Screening-2011.php.

Founded in 1996 in the San Francisco Bay area, Employment Screening Resources (ESR) is the company that wrote the book on background checks with ‘The Safe Hiring Manual’ by ESR founder and President Lester Rosen. Employment Screening Resources is accredited by The National Association of Professional Background Screeners (NAPBS®) Background Screening Credentialing Council (BSCC) for proving compliance with the Background Screening Agency Accreditation Program (BSAAP). ESR was the third U.S. background check firm to be ‘Safe Harbor’ Certified for data privacy protection. To learn more about ESR’s Leadership, Resources, and Solutions, visit http://www.ESRcheck.com or contact Jared Callahan, ESR Director of Client Relations, at 415.898.0044 or jcallahan@ESRcheck.com.

Experts Reveal Best Practices for Running Credit Checks during Employment Screening

By Thomas Ahearn, Employment Screening Resources (ESR) News Editor

A recent article from Inc.com, ‘How to Run a Credit Check,’ reveals best practices from experts for every step of the credit check process during employment screening so that employers may check the financial stability of potential employees.

According to the Inc.com article, employers using credit checks must consider the strong protections for potential employees that are built into federal regulations. They also need to be prepared for what to do with the results of the credit check and whether a bad credit history should automatically disqualify a job applicant from working at their business.

Financial background check experts – including Jared Callahan, Director of Client Relations for Employment Screening Resources (ESR) – agree the following five basic steps should be followed to get the most out of credit checks:

  • Step #1 – Have a Permissible Use
  • Step #2 – Get Permission
  • Step #3 – Find a Service to Use
  • Step #4 – Interpreting the Results
  • Step #5 – Do a Test Run

Step #1 – Have a Permissible Use

The federal Fair Credit Reporting Act (FCRA) dictates what constitutes a permissible use for credit reports:

  • In connection with a credit transaction;
  • Employment purposes;
  • Underwriting of insurance;
  • Professional licensing; and
  • Account review or other legitimate business needs.

For employment purposes, Callahan says only potential employees seeking jobs related to financial responsibilities should be subjected to a credit check: “If you’ve got ditch diggers out in the middle of nowhere, a credit check might not be relevant.” Employers also need to make sure the credit report is for a relevant purpose and that they are not arbitrarily digging into someone’s financial history.

Step #2 – Get Permission

Federal law requires employers always disclose when they seek to run a credit check on job applicants and they need to get their permission in writing too, along with personal information since credit check agencies require a full name and Social Security number. “The candidate’s rights are absolutely bulletproof protected by the Fed and the state you are in,” Callahan says.

Step #3 – Find a Service to Use

After attaining the permission of applicants, employers running credit checks on potential employees may use services such as Employment Screening Resources (ESR) that provide special employment-only credit checks with other background check information. These services usually charge a fee to run a credit check.

Step #4 – Interpreting the Results

Experts advise that standards for weighing the results should be established before employers start running credit checks on job applicants and that it is important to have a plan in place for what items will signal “red flags” or warning signs.

However, Callahan warns employers against jumping to a conclusion no matter what the credit report says since up to 75 percent of all credit reports contain incorrect information, including wrong home addresses and inaccurate bankruptcy details. “You really have to take a credit report with a grain of salt,” says Callahan, who also suggests that employers give subjects of credit reports a chance to respond and produce authentication for any financial points appearing on the credit report.

Step #5 – Do a Test Run

Consumers can run their own credit reports since the FCRA allows consumers to receive one free credit report a year from each of the three main reporting agencies: Equifax, TransUnion, and Experian. Consumers running their own credit check can keep on top of financial issues such as identity theft while finding and correcting inaccurate information. Government regulations make it easy to go online and contest the details of credit reports.

Employment Screening Resources (ESR) – a leading background check provider accredited by The National Association of Professional Background Screeners (NAPBS®) – recommends that employers should approach the use of credit reports for employment purposes with caution and use them only if there is a business justification. The Equal Employment Opportunity Commission (EEOC) is very concerned about the use of credit reports for employment purposes and has filed legal actions against some firms that use credit reports alleging that it results in a disparate or discriminatory impact.

In addition, some states are considering, or have passed, legislation to restrict the use of credit reports for employment purposes.  For example, effective January 3, 2011, the State of Illinois restricts employers from using credit reports for employment purposes. Under Illinois House Bill 4658 ‘The Employee Credit Privacy Act,’ employers in Illinois may not use a person’s credit history to determine employment, recruiting, discharge, or compensation.

The Inc.com article ‘How to Run a Credit Check’ is available at http://www.inc.com/guides/2010/12/how-to-run-a-credit-check.html.

For more information about credit checks, visit the Employment Screening Resources (ESR) website at http://www.ESRcheck.com

Founded in 1996 in the San Francisco Bay area, Employment Screening Resources (ESR) is the company that wrote the book on background checks with ‘The Safe Hiring Manual’ by ESR founder and President Lester Rosen. Employment Screening Resources is accredited by The National Association of Professional Background Screeners (NAPBS®) Background Screening Credentialing Council (BSCC) for proving compliance with the Background Screening Agency Accreditation Program (BSAAP). ESR was the third U.S. background check firm to be ‘Safe Harbor’ Certified for data privacy protection. To learn more about ESR’s Leadership, Resources, and Solutions, visit http://www.ESRcheck.com or contact Jared Callahan, ESR Director of Client Relations, at 415.898.0044 or jcallahan@ESRcheck.com.

Sources:

http://www.inc.com/guides/2010/12/how-to-run-a-credit-check.html

http://community.ere.net/blogs/doreenkoronios/2011/01/effective-132011-state-of-illinois-restricts-employers-from-using-credit-reports-for-employment-purposes/

Court Decision Clarifies that a Bankruptcy can be Used as Part of Pre-Employment Background Check for Private Employers

A new decision by the United States Court of Appeals for the Third Circuit has clarified the issue of whether a private employer can legally consider a job applicant’s bankruptcy under U.S bankruptcy law in making an employment decision. The Court ruled that when it comes to private employers, Congress intentionally only protected current employees from discrimination under bankruptcy law, and that job applicants were not protected. However, employers should still approach the use of bankruptcy records with great caution. Continue reading

Bad Credit Found During Background Check Leads to Revoked Job Offer and Lawsuit against University

By Thomas Ahearn, Employment Screening Resources (ESR) News Editor

A woman is suing the University of Miami (UM) in federal court on after her job offer at the college’s medical school was revoked due to bad credit found on a background check, a case some hope will help ban employers from using credit histories in hiring decisions.

According to a report by the Miami Herald, the woman’s application to become a senior medical collector in the patient financial services department had already been accepted by the UM when she was notified that a car repossession and defaulted student loan found on her credit report during a background check disqualified her from the job, even after she had been through several interviews and apparently had the right experience for that job.

In addition, the woman filing the suit is African-American and some believe the use credit reports by employers discriminates against minority job applicants since more Latinos and blacks are unemployed than whites and unemployment is often the reason people cannot pay their bills, according to the report in the Miami Herald.  The lawsuit is pending in court.

With unemployment still high and the economy still low, many job seekers with bad credit histories are in a “Catch-22” situation where they cannot fix their credit without finding a job but cannot find a job because they are rejected due to their bad credit. Meanwhile, employers argue that credit checks can help a company protect its assets, its clients, and prevent liability from negligent hiring claims.

While many and job seekers would like credit checks eliminated altogether by employers, a recent survey by the Society for Human Resources Management (SHRM) found that 60 percent of employers performed credit checks on at least some job applicants during the background check process and more than 1 in 10 employers ran credit checks on every job applicant.

As reported earlier on ESR News, credit background checks for employment purposes are a controversial part of the background screening industry, and the Equal Employment Opportunity Commission (EEOC) held a recent public meeting to discuss whether the use of credit checks during background checks violates the civil rights of job applicants.

To read more ESR News reports about the use of credit reports during employment background checks, visit: http://www.esrcheck.com/wordpress/tag/credit-reports/.

Founded in 1996 in the San Francisco Bay area, Employment Screening Resources (ESR) is the company that wrote the book on background checks with ‘The Safe Hiring Manual’ by ESR founder and President Lester Rosen. Employment Screening Resources is accredited by The National Association of Professional Background Screeners (NAPBS®) Background Screening Credentialing Council (BSCC) for proving compliance with the Background Screening Agency Accreditation Program (BSAAP). ESR was the third U.S. background check firm to be Safe Harbor’ Certified for data privacy protection. To learn more, visit http://www.ESRcheck.com or contact Jared Callahan, ESR Director of Client Relations, at 415.898.0044 or jcallahan@ESRcheck.com.

Source:
http://www.miamiherald.com/2010/12/06/1960665/woman-with-bad-credit-sues-um.html

Bill Restricting New Jersey Employers from Requiring Employment Credit Checks on Job Applicants Moves Closer to Law

By Thomas Ahearn, ESR News Blog

A bill that would restrict employers in New Jersey from requiring credit checks as a condition of employment is advancing toward law, according to a news release from the Assembly Democrats web site.

Bill A-3238 – sponsored by Assemblyman Ruben J. Ramos Jr. and Assemblywoman Cleopatra Tucker – prohibits an employer in New Jersey from requiring a credit check on a current or prospective employee as a condition of employment, unless the employer is required to do so by law or reasonably believes an employee has engaged in a specific activity that is financial in nature and constitutes a violation of law.

Under the bill, credit checks would be allowed for:

  • A managerial position which involves setting the financial direction or control of the business;
  • A position which involves access to customers’, employees’, or employers’ personal belongings or financial information, other than information customarily provided in a retail transaction;
  • A position which involves a fiduciary responsibility to the employer, including, but not limited to, the authority to issue payments, transfer money or enter into contracts or involves leases of real property;
  • A position which provides an expense account for travel; or
  • A law enforcement officer for a law enforcement agency in this state.

The bill also prohibits an employer from requiring a prospective employee to waive or limit any protection granted under the bill as a condition of applying for or receiving an offer of employment.

In addition, the bill provides for the imposition of civil penalties in an amount not to exceed $5,000 for the first violation, and $10,000 for each subsequent violation, collectible by the Commissioner of Labor and Workforce Development.

As reported earlier on the ESR News Blog, credit checks for employment purposes have become a controversial subject as job seekers look for work in a tough economy are caught in a “Catch-22” situation where they have bad credit because they cannot get a job but cannot get a job because they have bad credit.

As a result, the U.S. Equal Employment Opportunity Commission (EEOC), the EEOC held a public Commission meeting on October 20 to hear testimony on the growing use of credit histories of job applicants as selection criteria during employment background screening to see if the practice is discriminatory in any way. More information on the EEOC meeting may be found at http://www.eeoc.gov/eeoc/meetings/10-20-10/index.cfm.

For more information about employment credit checks, visit ESR News Blog section on ‘Credit Reports’ at http://www.esrcheck.com/wordpress/tag/credit-reports/.

Employment Screening Resources (ESR) is the company that wrote the book on background checks with ‘The Safe Hiring Manual’ by ESR founder and President Lester Rosen. ESR is recognized as Background Screening Credentialing Council (BSCC) Accredited by the National Association of Professional Background Screeners (NAPBS®) for proving compliance with the Background Screening Agency Accreditation Program (BSAAP). For more information about Employment Screening Resources, visit http://www.ESRcheck.com.

Sources:
http://www.assemblydems.com/Article.asp?ArticleID=3252
http://www.njleg.state.nj.us/2010/Bills/A3500/3238_I1.HTM
http://www.eeoc.gov/eeoc/newsroom/release/10-20-10b.cfm
http://www.eeoc.gov/eeoc/meetings/10-20-10/index.cfm

SHRM Tells EEOC Credit Checks Are Legitimate Background Screening Tool at Recent Public Meeting

By Thomas Ahearn, ESR News Blog

According to a news story on the Society for Human Resource Management (SHRM) website – “SHRM: Credit Checks Are Legitimate Screening Tool” – a representative for SHRM told the U.S. Equal Employment Opportunity Commission (EEOC) during a public hearing on October 20, 2010 that the federal government should not eliminate an employer’s use of credit histories to help make decisions about job candidates.

The representative, in prepared comments, said that “SHRM believes there is a compelling public interest in enabling our nation’s employers – whether that employer is in the government or the private sector – to assess the skills, abilities, and work habits of potential hires.” In addition, the representative said credit history is one of many factors – including education, experience and certifications – that employers use “to narrow that applicant pool to those who are most qualified.”

The SHRM representative pointed out Human Resources (HR) typically conducts a background check on the job finalist or group of finalists before making a job offer, and that background check might include checking personal references, criminal history, and credit history depending on the employer and the position to be filled.
 
Citing the Fair Credit Reporting Act (FCRA) of 1970 and the Civil Rights Act of 1964, the representative said SHRM believes “employees already have significant federal protection for the misuse of background checks.”
 
Recent SHRM Research Department data on the use of employer background screening practices was also referenced at the meeting. Among the findings:

  • Just 13 percent of employers surveyed conducted credit checks on all job candidates while another 47 percent consider credit history for candidates of select jobs.
  • Employers generally conducted credit checks only for certain positions, including jobs of financial or fiduciary responsibilities (91 percent), senior executive positions (46 percent) and positions with access to confidential employee information (34 percent).
  • Among employers that used credit checks, 57 percent initiated them only after making a contingent job offer and 30 percent initiated them after the job interview.
  • Four out of 10 employers surveyed did not conduct credit checks.

The EEOC heard public comment from SHRM and others to determine the extent of the practice of using credit checks during the background screening of job candidates, the effectiveness of its intended purpose, and its potential impact on different populations.

More information about the EEOC public meeting can be found at: http://www.eeoc.gov/eeoc/meetings/10-20-10/index.cfm

Employment Screening Resources (ESR) literally wrote the book on background checks with ‘The Safe Hiring Manual’ by ESR founder and President Lester Rosen. ESR is recognized as Background Screening Credentialing Council (BSCC) Accredited by the National Association of Professional Background Screeners (NAPBS®) for proving compliance with the Background Screening Agency Accreditation Program (BSAAP). For more information about Employment Screening Resources, visit http://www.ESRcheck.com.

Source:
http://www.shrm.org/about/news/Pages/LegitimateScreeningTool.aspx?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+shrm%2Fnews%2Fhr+(SHRM+Online%3A+HR+News)