A case involving a consumer credit report used in an automobile purchase demonstrates the potential dangers of terrorist database searches commonly used by background firms. This appears to be the first case in the nation dealing with use of terrorist databases by credit bureaus under the federal Fair Credit Reporting Act (FCRA), and provides guidance for the use of such information by Consumer Reporting Agencies (CRAs), which includes both credit bureaus and background screening firms. Continue reading
By Thomas Ahearn, ESR News Blog
To the relief of a number of California employers, California Governor Arnold Schwarzenegger has vetoed a bill passed by the California Legislature– AB 482 – that would have limited the use of credit reports by employers during employment background checks.
Assembly Bill (AB) 482 would have prohibited employers from using credit checks for employment purposes, except in limited circumstances. In his “veto message” to the members of the California state assembly, the Governor stated that he vetoed the bill because existing law already provided protections for employees from improper use of credit reports and that the bill would “significantly increase the exposure for potential litigation over the use of credit checks.”
To the Members of the California State Assembly:
I am returning Assembly Bill 482 without my signature.
This bill would prohibit an employer from using a consumer credit report for employment purposes with certain exceptions.
This bill is similar to legislation I have vetoed for the last two years on the basis that California’s employers and businesses have inherent needs to obtain information about applicants for employment and existing law already provides protections for employees from improper use of credit reports. As with the last two bills, this measure would also significantly increase the exposure for potential litigation over the use of credit checks.
For these reasons, I am unable to sign this bill.
The use of credit reports by employers during employment background checks has become a very controversial subject. Several states have limited the use of credit reports for employment purposes and a federal bill seeks to ban credit report checks for most employment screening.
The Employment Screening Resources (ESR) News Blog has posted several articles on the use of credit repots during employment background checks:
- New Illinois Law Prohibits Pre-Employment Credit Checks on Most Job Applicants
- Oregon Issues New Rules on Use of Credit History for Employment Decisions
- Federal Bill Seeks To Ban Credit Report Checks for Most Employment Screening
However, ESR has also written about how ‘Credit Reports of Job Applicants May Not Always Be So Important To Employers’ to address concerns of applicants who are concerned how their damaged credit would affect their job searches. Employment credit checks are not as common as most people think.
According to a recent survey from the Society for Human Resource Management (SHRM), while 60% of organizations performed some type of credit report checks on job candidates, only 13% conducted credit report checks on all job candidates and 47% of organizations performed credit report checks on selected job candidates, mostly for executive positions or positions with financial responsibility or access to confidential or proprietary information.
By Thomas Ahearn, ESR News Blog Writer
Recently, a blog on SFGate.com by Personal Finance Authority Erica Sandberg – Can you get a job with bad credit? The answer may surprise you. – addressed a reader who was concerned how her damaged credit would affect her job search.
In her blog, which contained an excerpt from a column she wrote on CreditCards.com, Sandberg indicated there are “many myths surrounding credit reports and employment” and that to “get to the bottom” of how credit reports are really being used she spoke with Lester Rosen, CEO of Employment Screening Resources (ESR), a consumer reporting agency (CRA) and human resources consulting firm based in the San Francisco area.
In the blog, Rosen had the following to say about credit reports of job applicants being used for employment purposes:
- 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. It’s a misconception that people are being blacklisted because of their credit reports. However, if the employer does makes an adverse decision based on your report, you have a right to know about it and get a copy of the report they used.”
The gist of the story, according to Sandberg, is that credit reports may not be as powerful and important as job applicants may think, and that chances are some employers will be willing to give applicants with debt problems a break if they really want to hire them.
For more information on the use of credit reports in background checks of job applicants, visit Employment Screening Resources (ESR) at http://www.ESRcheck.com.
By Thomas Ahearn, ESR News Blog Writer
According to a news release on its website, the Federal Trade Commission (FTC) is proposing revisions to the notices that consumer reporting agencies (CRAs) provide to consumers, and also to users and furnishers of credit report information under the Fair Credit Reporting Act (FCRA). The proposed changes are designed to reflect new rules that the FTC has enacted under the Fair and Accurate Credit Transactions Act (FACT Act or FACTA) of 2003, and to make the notices more useful and easier to understand.
In addition to revising the general Summary of FCRA Rights notice (“A Summary of Your Rights Under the Fair Credit Reporting Act”) which informs consumers how to obtain a free credit report and dispute inaccurate information in credit reports, the FTC also is proposing improvements to the notices that credit reporting agencies provide to users and furnishers of credit report information.
The User Notice (“Notice to Users of Consumer Reports: Obligations of Users Under the FCRA”) and Furnisher Notice (“Notice to Furnishers of Information to Consumer Reporting Agencies: Your Obligations Under The Fair Credit Reporting Act”) inform users and furnishers of their obligation to provide certain protections to consumers.
The text of the Federal Register Notice is at: http://www.ftc.gov/os/fedreg/2010/august/100816fcranotice.pdf. A brief summary of some proposed revisions for each of the three notices includes the following:
- A. Summary of Rights: The FCRA requires the Summary of Rights to include an explanation of (1) the consumer’s right to obtain his or her consumer report; (2) the frequency and circumstances under which a consumer may receive free consumer reports under the FCRA; (3) the right of a consumer to dispute incorrect or outdated information in his or her consumer report; and (4) the right of a consumer to obtain a credit score. With respect to a consumer’s right to dispute information in his or her consumer report, on July 1, 2009, the Commission and other federal regulatory agencies issued the Furnisher Direct Dispute Rule, which took effect on July 1, 2010. Prior to the effective date of this Rule, under the FCRA, consumers had a right to dispute the accuracy of information in their consumer reports only by filing a dispute with a CRA. Under the Furnisher Direct Dispute Rule, consumers may dispute the accuracy of information in their consumer report directly with the furnisher of that information as well as the CRA. The proposed revised Summary of Rights reflects this additional dispute right.
- B. Furnisher Notice: The proposed revised Furnisher Notice reflects the new duties of furnishers set forth in the Furnisher Direct Dispute Rule described above. It also reflects new duties contained in the Furnisher Accuracy Rule, which became effective on July 1, 2010. The Rule requires furnishers to establish policies and procedures to ensure the accuracy and integrity of the consumer report information they furnish to CRAs, and to consider the guidelines prescribed by the agencies in establishing these policies and procedures.
- C. User Notice: The proposed revised User Notice reflects the new duties of users set forth in several of the rules finalized pursuant to the FACT Act. 1.) First, effective January 1, 2011, the Risk-Based Pricing Rule will require users of consumer reports to provide risk-based pricing notices in certain circumstances if they extend credit to a particular consumer on less favorable terms than those they offer to others. As an alternative to providing risk-based pricing notices, the Rule permits such users to provide consumers who apply for credit with a free credit score and information about their credit score. 2.) Second, if a CRA notifies a user of consumer reports that the address the user provided about a consumer is different from the address in the consumer report, the Address Discrepancy Rule, which became effective on January 1, 2008, requires the user to implement reasonable procedures to verify that the consumer report relates to the correct consumer. Users of consumer reports that verify the address is accurate, and that regularly furnish information to the CRA, have additional responsibilities under the Rule. 3.) Finally, the Medical Information Rules, which became effective on April 1, 2006, prescribe the circumstances under which creditors may obtain, use, and share medical information.
In addition, the revisions will improve the clarity, readability, and usefulness of the documents for consumers, furnishers, and users. These notices – originally issued in 1997 and revised in 2004 – are further examples of how the FTC works for consumers to prevent fraudulent, deceptive, and unfair business practices.
The FTC is accepting public comments on the proposed changes until September 21, 2010 at the following link: https://ftcpublic.commentworks.com/ftc/fcrarevisednotices/
The CNN story – “Investigation: Could background check have prevented alleged rape?” – investigated why British Petroleum (BP) and a company used to hire cleanup workers for the recent oil spill in the Gulf of Mexico did not perform basic background checks.
According to the CNN story, this lack of background checks for oil cleanup workers led to a sex offender landing a job and then allegedly raping a co-worker. A CNN investigation into the incident revealed that basic background checks were not performed on those hired to remove oil from the beaches in Mississippi.
A County Sheriff in Mississippi told CNN he learned from the head of BP security that no background checks were conducted on the cleanup workers and that he warned the BP official that BP risked the criminal element looking for jobs and they would not know who they were dealing with if they did not do background checks. The Sherriff also said that, if asked, his department would have performed the background checks for free.
The 41-year-old suspect – who faces charges of sexual battery and failure to register as a sex offender – has a criminal history dating back to 1991. He was put on the national sex offender registry for a 1996 conviction for contributing to the delinquency of a minor and was also on probation after being convicted in 2003 for cruelty to children, CNN reports.
While the CNN story shows the need for background checks for security reasons, a WSJ law blog – “Background Checks in Hiring: Discrimination or Due Diligence?” – asks if employers can disqualify job applicants simply for having a criminal past and finds the answer may not be so clear cut, at least according to a story by the Associated Press (AP).
The AP reports the Equal Employment Opportunity Commission (EEOC) is arguing that the practice of employers disqualifying applicants with criminal records or bad credit history may be discrimination since those applicants are “disproportionately black or Latino.” The WSJ law blog also quotes the AP story to show that employers using a blanket refusal to hire applicants with criminal records could risk going against federal employment law:
If criminal histories are taken into account, the EEOC says employers must also consider the nature of the job, the seriousness of the offense and how long ago it occurred. For example, it may make sense to disqualify a bank employee with a past conviction for embezzlement, but not necessarily for a DUI.
The AP also reported that the EEOC filed a class-action discrimination lawsuit against a Dallas-based events planning firm in 2009, alleging that the firm “used credit history and criminal records to discriminate against blacks, Hispanics, and males.”
The two news stories read back to back – one in which the failure to do a background check possibly led to a preventable crime, the other questioning if background checks using credit histories and criminal records are discriminatory – could leave employers wondering how much background checking is too much and how much is too little.
These two stories – appearing on the same day from major news organizations but with vastly different angles – underscore the point that background checks occur at the intersection of security and privacy. On the one hand, background checks can promote safety, security, and honesty while lessening the chance for workplace violence or the hiring of unqualified workers with fake credentials. On the other hand, employers using background checks should be concerned with issues of fairness and privacy while combating discrimination.
The solution for employers is reaching the right balance in their background check program.
Most job applicants and employees in the state of Illinois with less-than-stellar credit histories will soon not have to worry about employers running credit checks on them, as the state has joined Hawaii, Oregon, and Washington in passing a law limiting the use of credit reports by employers for employment screening background checks.
According to a press release from the State of Illinois news page at Illinois.gov, Governor Pat Quinn signed a bill into law that prohibits Illinois employers from discriminating based on the credit history of job seekers or employees. The new law – which takes effect on January 1, 2011 – removes a significant barrier to employment for jobseekers whose credit history has been affected by the greatest economic recession since the 1930’s.
Illinois House Bill 4658 creates the “Employee Credit Privacy Act,” which 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.
The new law, according to a quote from Governor Quinn in the press release, “will stop employers from denying a job or promotion based on information that is not an indicator of a person’s character or ability to do a job well.”
However, while the “Employee Credit Privacy Act” forbids employers from inquiring about an applicant or employee’s credit history or obtaining a copy of their credit report, the law does not affect an employer’s ability to conduct a thorough background check that does not contain a credit history or credit report. In addition, 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;
- access to personal, financial or confidential information, trade secrets, or state or national security information.
According to the press release, pre-employment credit screenings are on the rise throughout the nation, as recent surveys by the Society for Human Resources Management (SHRM) found that 60 percent of employers run a credit check on at least some applicants, an increase from the 42 percent in 2006 and 25 percent in 1998.
More specifically, the SHRM surveys found that 13 percent of organizations performed credit checks on all candidates while 47 percent performed credit checks on selected job candidates, mostly for positions with fiduciary and financial responsibility such as handling cash, banking, and accounting.
For more information on the use of pre-employment credit checks by employers, and to keep up to date on the latest changes in laws pertaining to background checks, visit Employment Screening Resources (ESR) at http://www.ESRcheck.com.
By Thomas Ahearn, ESR News Blog Writer
According to a recent article on MSNBC — Job Candidates Undergoing Credit Scrutiny — applicants applying for jobs these days can expect prospective employers to verify resume information, contact references, possibly do a criminal background check, and even be asked by companies to allow credit checks to scrutinize their credit histories.
The article cites a recent survey by the Society for Human Resource Management (SHRM) in which 60 percent of the responding companies claimed they perform credit checks of some or all job candidates. Breaking down the survey results further, only 13 percent of organizations performed credit checks on all job candidates while 47 percent performed them on selected job candidates, usually for positions with fiduciary and financial responsibility such as handling cash, banking, and accounting.
MSNBC also reported that credit checks are required about half the time for senior executive positions and that the SHRM survey also showed that potential candidates with outstanding judgments, accounts in collection, or a bankruptcy in their file may be passed over for a job.
Lester Rosen, President of Employment Screening Resources (ESR), was quoted in the MSNBC article 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, ESR 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 in the article 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.
For jobseekers, 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 ESR’s ‘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 named Trend Number One in its Third Annual Top Ten Trends in the Pre-Employment Background Screening Industry for 2010 — is a question that will be asked as long as employers run credit checks on applicants with money troubles.
For more information on background checks and credit checks, visit Employment Screening Resources (ESR) at http://www.ESRcheck.com.
As noted previously on ESR, the state of Oregon recently passed a law preventing most employers from using the credit histories of job applicants or employees for employment-related decisions by prohibiting an employer from using credit history for employment purposes unless that credit history information is “substantially job-related” and the reasons for using credit information are disclosed to the employee or applicant in writing.
The new Oregon law — which took effect July — establishes any violation as an unlawful employment practice enforceable by the Civil Rights Division of the Bureau of Labor and Industries (BOLI). According to a BOLI press release, the final rules for employer use of credit histories were completed quickly to protect employees and assist employers. These rules prohibit employment discrimination by employers on the basis of worker’s credit history information with an exception for information that is “substantially job-related.”
In a document titled Employer Obtainment or Use of Credit History Information available on the BOLI website at http://www.oregon.gov/BOLI/, the determination of whether credit history information is substantially job-related must be evaluated with respect to the position for which the individual is being considered or holds and that credit history information of an applicant or employee is substantially job-related if:
- An essential function of the position at issue requires access to financial information not customarily provided in a retail transaction that is not a loan or extension of credit (Financial information customarily provided in a retail transaction includes information related to the exchange of cash, checks, and credit or debit card numbers); or
- The position at issue is one for which an employer is required to obtain credit history as a condition of obtaining insurance or a surety or fidelity bond.
Oregon’s new rules on credit history use by employers also define Unlawful Discrimination by stating it is an unlawful employment practice for an employer to obtain or use for employment purposes information contained in the credit history of an applicant for employment or an employee, or to refuse to hire, discharge, demote, suspend, retaliate or otherwise discriminate against an applicant or an employee with regard to promotion, compensation or the terms, conditions or privileges of employment based on information in the credit history of the applicant or employee.
In addition to the new rules available online at http://www.oregon.gov/BOLI/LEGAL/docs/RulesSoS0052010.pdf, Oregon has also provided a Technical Assistance for Employers hotline at 971-673-0824 for further assistance.
By Thomas Ahearn, ESR Staff Writer
Job applicants need all the information they can get on the subjects of credit reports and background checks, especially when credit report checks by some employers for certain job positions during employment background checks could mean the difference in finding work.
Employment Screening Resources (ESR), a leading national pre-employment screening firm based in the San Francisco area, has made available â€“ at no charge â€“ resources aimed at job applicants concerned about background checks and credit reports. The information, which can help job applicants navigate the background check process and maximize their chance at employment, is available on ESR’s Applicant Resources page at: http://www.esrcheck.com/Applicant-Resources.php.
As reported earlier on ESR, the use of credit reports during pre-employment background checks has become a controversial issue. Currently, a federal bill â€“ an amendment to the â€˜Restoring American Financial Stability Act of 2010â€™ â€“ seeks to ban credit report checks for most employment screening. In addition, three states â€“ Washington, Hawaii, and Oregon â€“ currently have restrictions on an employerâ€™s use of credit reports in making employment-related decisions.
Consumers and job applicants concerned about background checks and credit reports may now find information that includes special reports, articles, and links on such topics as:
- Consumer rights when it comes to background checks;
- How to deal with credit reports, and;
- How consumers with criminal records can get back into the workforce.Â Â Â Â
â€œAs a Consumer Reporting Agency, part of the ESR mission is to help consumers by providing the most accurate reports possible and to give consumers information on how the process works,â€ says Jared Callahan, Director of Client Relations at ESR and a national speaker on topics related to background checks.Â Â â€œWe are pleased to provide job applicants with information about their rights with respect to background checks in order to help consumers cope effectively with the process and to maximize the opportunity to gain employment.â€
Employment Screening Resources (ESR) â€“ the firm that literally wrote the book on background checks, “The Safe Hiring Manual” â€“ provides background checks that do not engage in cheap database shortcuts or off-shoring that endangers privacy. ESR will also soon be launching MyESRcheck.com (http://www.myesrcheck.com), a website that allows job applicants to perform their own professional verifications and employment background checks while also helping employers save time and money hiring qualified employees.
Employers may have one less employment screening tool at their disposal if a federal bill banning credit checks during most employment background checks becomes law.
Recent legislative efforts throughout the country have sought to ban credit reports from the employment screening process. Three states — Washington, Hawaii, and Oregon — currently have restrictions on an employer’s use of the credit history of an applicant or employee in making employment-related decisions. There is even pending legislation at the federal level — HR 3149, which is currently in committee — to limit credit checks.
Now Senator Dianne Feinstein (D-CA) has introduced a senate bill — SA 3795 — as part of an amendment to the S.3217 – Restoring American Financial Stability Act of 2010 bill, an effort by lawmakers to improve accountability and transparency in the financial system and to protect consumers from abusive financial services practices.
Much like the pending HR 3149, SA 3795 would restrict employers from using aconsumer’s creditworthiness, credit standing, or credit capacity, in making any employment decision or for the basis of taking any adverse action even if the employer gets authorization for the background check report from the consumer. The exceptions to this prohibition on credit checks during employment screening would be for:
- National security or FDIC clearance;
- Employment with state or local government agency which requires the use of this information;
- Employment in a management position with access to customer funds at a financial institution; or
- As otherwise required by law.
Because Senator Feinstein’s amendment to the Financial Services reform bill would effectively prohibit the use of credit history in employment background checks except in extremely limited circumstances — mostly government employment — trade associations representing millions of employers are planning to write members of the U.S. Senate to express opposition to banning the use of credit checks for employment purposes.
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.
Also, employment credit checks are not as common as most people think, according to a recent survey from the Society for Human Resource Management (SHRM) that found only 13% of organizations conducted credit checks on all job candidates while 40% did not conduct any credit checks. Of the 47% of organizations that did perform credit checks on selected job candidates, most were for executive positions, positions with financial responsibility, or for positions with access to confidential or proprietary information.
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 to the crime were instances of living beyond their financial means (39% of cases) or experiencing financial difficulties (34% of cases).
While it is wrong to say all financial difficulties lead to fraud, some employers believe it is also wrong for Congress 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% of their annual revenue to employee fraud.
Consumers have significant protections when employers use credit reports during background checks as part of their hiring process, as the use of consumer reports in employment situations is tightly regulated:
- Prior to requesting a consumer credit report, an employer must provide to the prospective employee a written notice stating the source of the information and how it will be used.
- The employer must also provide a copy of the consumer credit report to the consumer upon request, and prior to taking an adverse action.
- If an adverse employment action is taken against a prospective employee due to the information contained in a consumer credit report, the user must provide the name and contact information for the reporting agency to the consumer and explain the reasons for the action.
- Under the FCRA, any person who willfully fails to comply is liable to that consumer in an amount equal to the sum of (1) (A) any actual damages sustained by the consumer as a result of the failure or damages of not less than $100 and not more than $1,000; or (2) such amount of punitive damages as the court may allow; and (3) in the case of any successful action to enforce any liability under this section, the costs of the action together with reasonable attorney’s fees as determined by the court.
- Credit scores are not provided to employers for employment decisions.