Tag Archives: credit reports

CNN and WSJ News Stories Show Background Checks Occur at Intersection of Security and Privacy

By Lester Rosen, ESR President & Thomas Ahearn, ESR News Blog Writer

Recently, two news stories about background checks from very different angles appeared in two major media outlets – CNN and the Wall Street Journal (WSJ) – on the same day.

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.

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

Sources:

http://www.cnn.com/2010/CRIME/08/12/gulf.cleanup.workercharged/
http://blogs.wsj.com/law/2010/08/12/background-checks-in-hiring-discrimination-or-due-diligence/
http://hosted.ap.org/dynamic/stories/U/US_JOB_SCREENING_ILLEGAL_TACTICS?SITE=ORMED&SECTION=HOME&TEMPLATE=DEFAULT
http://www.esrcheck.com/wordpress/2010/03/15/background-check-bashing-either-too-much-or-too-little-depending-upon-the-most-recent-headline/

New Illinois Law Prohibits Pre-Employment Credit Checks on Most Job Applicants

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.

Sources:

http://www.illinois.gov/PressReleases/ShowPressRelease.cfm?SubjectID=1&RecNum=8737

http://e-lobbyist.com/gaits/text/21025

Credit Checks More Common During Employment Background Checks But Are They Always Necessary?

MSNBC Article Quotes Employment Screening Resources President Lester Rosen

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.

Sources:

http://www.msnbc.msn.com/id/38561183/ns/business-consumer_news/

http://www.esrcheck.com/wordpress/2010/03/23/shrm-surveys-reveal-3-out-of-4-businesses-conduct-reference-background-checks-and-criminal-background-checks/

http://www.esrcheck.com/wordpress/2010/06/02/esr-provides-information-to-job-applicants-on-background-checks-and-credit-reports/

http://www.esrcheck.com/wordpress/2010/01/04/2010-trend-on-increased-focus-on-whether-credit-reports-and-criminal-records-are-discriminatory/

Oregon Issues New Rules on Use of Credit History for Employment Decisions

By Lester Rosen, President of ESR, & Thomas Ahearn, ESR News Staff Writer

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.

For more information about use of credit history for employment screening, visit Employment Screening Resources (ESR) at http://www.esrcheck.com.

Sources:

http://www.oregon.gov/BOLI/LEGAL/docs/RulesSoS0052010.pdf

http://www.oregon.gov/BOLI/docs/06.01.10_BOLI_Release_-_SB_1045_Rules.pdf

ESR Provides Information to Job Applicants on Background Checks and Credit Reports

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 – at no charge – 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 – an amendment to the ‘Restoring American Financial Stability Act of 2010’ – seeks to ban credit report checks for most employment screening. In addition, three states – Washington, Hawaii, and Oregon – currently have restrictions on an employer’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.    

“As 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,” says Jared Callahan, Director of Client Relations at ESR and a national speaker on topics related to background checks.   “We 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.”

Employment Screening Resources (ESR) – the firm that literally wrote the book on background checks, “The Safe Hiring Manual” – 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.

For more information credit reports and background checks, please visit Employment Screening Resources (ESR) at http://www.esrcheck.com or contact Jared Callahan at  jcallahan@ESRcheck.com.

Sources:

http://sanfrancisco.dbusinessnews.com/shownews.php?newsid=211183&type_news=latest

http://www.esrcheck.com/wordpress/tag/credit-reports

Federal Bill Seeks To Ban Credit Report Checks for Most Employment Screening

By Les Rosen, President of ESR & Thomas Ahearn, ESR Staff Writer

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. 

For more information on credit reports, background checks, and employee theft and fraud, visit Employment Screening Resources (ESR) at http://www.esrcheck.com.

Sources:

http://www.acfe.com/occupational-fraud/occupational-fraud.asp

http://www.shrm.org/Research/SurveyFindings/Articles/Pages/BackgroundChecking.aspx

http://www.kstreetresearch.com/documents/050410Amendments/FEINSTEINAMENDMENTSA3795.pdf

http://www.govtrack.us/congress/bill.xpd?bill=h111-3149

http://www.govtrack.us/congress/bill.xpd?bill=s111-3217&tab=amendments

FTC Offers Facts for Consumers about Credit Reports and Employment Background Checks

By Les Rosen, President of ESR & Thomas Ahearn, ESR Staff Writer

The Federal Trade Commission (FTC) – the nation’s consumer protection agency – issued “FTC Facts For Consumers” in May 2010 that explains “Credit Reports and Employment Background Checks” to consumers who have applied for jobs.

Although the new FTC notice  has been criticized for containing some information that is  technically inaccurate, it still provides helpful information for consumers.

The FTC asks consumers the following question about background checks and credit reports:

Did you know that when you apply for a job, an employer is permitted to do a background check before hiring you? Depending on the employer and the job, that background information might include your employment history, your driving record, and your credit report.

A credit report, according to the FTC, has information about where a consumer lives, how they pay bills, whether they have been sued or arrested, or have filed for bankruptcy. Credit report companies sell the information in credit reports to employers and other businesses that use that information to evaluate applications for employment, credit, insurance, or renting a place to live. Employers also are allowed to use credit reports to evaluate an employee for retention, promotion, or reassignment.

The FTC enforces the Fair Credit Reporting Act (FCRA), a law that protects the privacy and accuracy of the information in a consumer’s credit report. The FCRA spells out the rights of a job applicant and an employer’s responsibilities when using credit reports and other background check information to assess an application for employment.

The FTC also details key employment provisions of the FCRA, most notably that employers must get permission from job applicants before asking for background check reports about them from a credit reporting company or any other company that provides background check information.

In addition, if an applicant does not get a job because of information in a background check report, the employer has certain legal obligations: 1.) an employer must show applicant the report, and 2.) the employer must tell the applicant how to get his or her own copy. The report is free if the applicant asks for it within 60 days.

The FTC provides more details about these key provisions:

  • Notice and Authorization: Before an employer can ask for credit report or background check report about an applicant from any companies that provide them, it must tell the applicant that it might use the information to make an employment decision.
  • Pre-Adverse Action Procedures: If an employer might use information from a credit report or background check report to take an “adverse action” – for example, to deny an application for employment – the employer must give the applicant a copy of the background check report and a document called ‘A Summary of Your Rights Under the Fair Credit Reporting Act’ before taking the adverse action.
  • Adverse Action Procedures: If an employer takes an adverse action against an applicant based on information in a credit report or background check report, it must notify the applicant and that notice must include: 1.) the name, address, and phone number of the company that supplied the credit report or background check report information; 2.) a statement that the company that supplied the credit report or background check report didn’t make the decision to take the adverse action and can’t give the applicant any specific reasons for it; and 3.) a notice of the applicant’s right to dispute the accuracy of any information in the credit report or background check report and to get an additional free report from the company that supplied the credit report or background check report if he or she asks for it within 60 days.

To fix any inaccurate or incomplete information in a background check report, the FTC advises the applicant to contact the background check company that issued the report and dispute the information. If an investigation reveals that a correction is warranted, the company must send an updated report to the employer if asked to do so.

In addition, a ‘Notice of Negative Public Records’ requires that if a company provides an employer with a credit report or background check report that has negative information about an applicant gathered from public records, that company either has to tell the applicant that it provided the information to the employer or has to take special steps to make sure the information is accurate.

The FTC also 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.

The FTC advises applicants to report FCRA violations by employers because the law allows the FTC, other federal agencies, and states to sue employers who don’t comply with the law’s provisions. The FCRA also allows people to sue employers in state or federal court for certain violations.

Before applying for a job, the FTC suggests jobseekers order a free copy of their credit report from each of the three nationwide credit reporting companies – Equifax, Experian, and TransUnion – that are required by law to provide consumers once every 12 months (if the consumers ask). To order free credit reports, consumers should visit AnnualCreditReport.com at http://www.annualcreditreport.com/, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

For more information about the use of credit reports during background checks, please visit Employment Screening Resources (ESR) at http://www.esrcheck.com.

Sources:

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre36.shtm

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre36.pdf (PDF file)

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre35.pdf (PDF file)

http://www.annualcreditreport.com/

http://www.ftc.gov/bcp/edu/resources/forms/requestformfinal.pdf (PDF file)

Credit Reporting Agency Fights to Preserve Use of Credit Checks during Employment Background Checks

By Lester Rosen, President of ESR & Thomas Ahearn, ESR Staff Writer

With 15 million workers currently unemployed according to recent Department of Labor statistics, it has been argued that job applicants risk getting caught in a Catch-22 situation where they have bad credit because they cannot get jobs but cannot get jobs because they have bad credit.

As a result, states such as Oregon, Washington, and Hawaii have already limited the use of credit reports for employment screening by enacting bans on credit checks during background checks unless the information directly relates to occupational qualifications.

However, the Chicago Tribune reported that one of three major credit bureaus that collect financial information on Americans – Chicago-based credit reporting agency TransUnion  is fighting to preserve the use of credit checks during employment background checks.

TransUnion defends credit checks as a way for employers to protect themselves against theft and fraud, since employees with poor credit history may be more likely to engage in unethical or illegal behavior, especially in jobs where they are involved with finances, according to the Tribune article.

Along with the other two large credit bureaus Equifax and Experian, TransUnion helps employers, financial institutions, landlords, among others to use credit information to guide their decisions about hiring, extending credit, lending money, and housing.

Although a recent survey from the Society for Human Resource Management (SHRM) found that 60 percent of employers performed credit background checks on all job candidates or on selected job candidates, that statistic can be misleading since of the firms that use credit checks, it appears the use is generally selective. The survey revealed that 47 percent of the employment credit reports were used only on selected candidates for positions that presumably involved access to assets, cash, or sensitive information.  Only 13 percent of employers used credit background checks across the board on all job candidates.  In addition, 40 percent of employers surveyed did not conduct any credit background checks. It could be argued that the alarm over the use of credit reports has been exaggerated.

In addition, given the fact that often times past employers will not give a reference beyond dates of employment and job title, employers may well be in need of additional tools when hiring for sensitive positions. 

Critics find credit checks during employment background checks discriminatory and bills restricting the practice have been introduced in the U.S. House of Representatives and many states. Even some background check firms advise caution with credit checks.

Employment Screening Resources (ESR), a leading national online background check firm, recently released its third annual Top Ten Trends in the Pre-Employment Background Screening Industry for 2010, which identified new trends making a difference as well as old trends that have evolved as the screening industry matures.

The first of the Top Tentrends ESR tracked for 2010 is the increased focus on whether credit reports used during background checks are discriminatory. ESR advises employers to approach credit reports with caution during background checks and to 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 since information could be incorrectly reported or the applicant may be the victim of identify theft which can lead to false data.

On the other hand, ESR warns that hiring an employee that handles money, makes financial decisions, or has access to private data without running a credit reports during background checks could result in allegations of negligent hiring if a theft occurs.

Lester S. Rosen, the CEO of Employment Screening Resources, was quoted in an article on MSNBC as saying that “if a new worker is to have access to large amounts of company cash or financial systems, it’s only prudent for a hiring manager to find out if the applicant has a pile of unpaid debts.

Rosen went on to say: “If an employer hires an embezzler and did not do a credit report in a sensitive position and the employer was then sued for negligent hiring, the argument would then be: How stupid were you for not running a credit report?”

Though many employers run credit checks on some applicants, relatively few are turned down for a job because of bad credit, according to ESR’s Rosen. “It takes something pretty horrendous in the credit report to reverse a decision that they are vested in,he says.

One more thing to keep in mind, according to Rosen, is that it is an urban myth that employers receive a “credit score,” the three-digit numerical expressions  such as FICO based on statistical analysis of a consumer’s credit files. Employment credit reports  which are different than credit reports used for lending  do not contain a credit score.

For more information on credit reports used during background checks, read a white paper prepared jointly by LexisNexis and Employment Screening Resources (ESR) , “The Use of Credit Reports in Employment Background Screening:  An Overview for Job Applicants“ at http://www.esrcheck.com/docs/credit_report_whitepaper.pdf.

Sources:

http://www.chicagotribune.com/business/ct-biz-0429-credit-checks-transunion–20100428,0,5056644.story

http://www.bls.gov/news.release/empsit.nr0.htm

http://www.esrcheck.com/wordpress/1429/shrm-surveys-reveal-3-out-of-4-businesses-conduct-reference-background-checks-and-criminal-background-checks

http://www.esrcheck.com/wordpress/1548/new-oregon-law-prohibits-use-of-credit-history-of-job-applicants-for-employment-screening

http://www.msnbc.msn.com/id/35512038/ns/business-eye_on_the_economy/

http://www.esrcheck.com/wordpress/1237/employment-screening-resources-releases-third-annual-trends-for-pre-employment-background-screening-in-2010 

 http://www.esrcheck.com/wordpress/1139/2010-trend-on-increased-focus-on-whether-credit-reports-and-criminal-records-are-discriminatory

New Oregon Law Prohibits Use of Credit History of Job Applicants for Employment Screening

By Thomas Ahearn, ESR Staff Writer

A newly signed law in Oregon prevents employers — with limited exceptions — from using the credit histories of job applicants in making employment-related decisions.

Senate Bill (SB) 1045 — recently signed into law by Oregon Governor Ted Kulongoski — prohibits the use of credit history for employment purposes including hiring, discharge, promotion, and compensation. The new Oregon law, originally set to take effect July 1, 2010, has been declared by the governor to be effective immediately.

The new law establishes any violation as an unlawful employment practice, enforceable through the Bureau of Labor and Industries (BOLI) and civil action. However, SB 1045 provides exceptions for financial institutions, public safety offices, and other employment if credit history is job-related and use is disclosed to applicant or employee.

The exceptions to the new law include the following circumstances:

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

Oregon now joins Washington and Hawaii as states placing limits on the use of credit reports for employment purposes by enacting bans on workplace credit checks. In 2007, Washington passed a law stating employers could not obtain a credit report as part of a background check unless the information was substantially job related and the employer’s reasons for the use of such information were disclosed to the consumer in writing. In 2009, Hawaii also placed limits on credit reports by making it an unlawful discriminatory practice for any employer to make an employment decision based upon an individual’s credit history or credit report, unless the information directly relates to an occupational qualification. 

Private employers in Oregon will need to carefully review their justification for a credit report and be prepared to state those reasons in writing to an applicant before a credit report is requested or obtained.

The use of credit reports for the purposes of employment screening is a controversial subject, and critics who question the accuracy, relevance, and fairness of credit reports argue that a credit history has no relationship to the ability to perform the job and may result in unlawful discrimination.

In addition, applicants with financial situations severely impacted by the ongoing recession may be victimized again when a negative credit report makes it even harder to get a job, creating a ‘Catch-22′ situation in which applicants have bad credit because they cannot get jobs and cannot get jobs because they have bad credit.

However, others believe the use of credit reports for employment purposes is critical to preventing embezzlement or other problems where someone is hired to a position with access to cash or assets. Contrary to popular belief, employers do not see the credit scores — such as the widely used three-digit FICO model — and thus cannot use them for employment decisions.

Furthermore, the use of credit reports by employers may not be as common as some people think. A recent survey by the Society of Human Resource Management (SHRM) found that only 13 percent of organizations performed credit background checks on all candidates, while 40 percent did not conduct any credit background checks and 47 percent performed them on selected job candidates. 

Many background screening firms — including Employment Screening Resources (ESR) — recommend that credit reports be reserved only for positions where there is a clear business justification, and to keep in mind that credit reports may contain information that is incorrect or not relevant to the job.

Source: http://www.leg.state.or.us/10ss1/measpdf/sb1000.dir/sb1045.a.pdf.

Related ESR NEWS story: http://www.esrcheck.com/wordpress/1369/proposed-credit-report-law-in-oregon-would-limit-employment-screening-background-checks

SHRM Surveys Reveal 3 Out Of 4 Businesses Conduct Reference Background Checks and Criminal Background Checks

By Thomas Ahearn, ESR Staff Writer

A series of recent surveys from the Society for Human Resource Management (SHRM) reveals that when it comes to reference background checks and criminal background checks, approximately three out of four U.S. businesses perform these two types of background checks as part of their pre-employment screening programs.

According to surveys conducted in November and December of 2009 and comprised from a sample of over 400 randomly selected Human Resources professionals from SHRM’s membership, 76 percent of organizations conducted reference background checks for all job candidates, while 73 percent of organizations conducted criminal background checks for all job candidates by reviewing consumer reports of candidates.

Surprisingly, despite recent controversy surrounding the use of credit background checks in pre-employment screening, the survey found that only 13 percent of organizations performed credit background checks on all candidates, while 40 percent did not conduct any credit background checks and 47 percent performed them on selected job candidates.

As for which job categories that organizations chose to conduct background checks on, the survey revealed candidates for positions with fiduciary and financial responsibility (handling cash, banking, and accounting) led in both credit background checks (91 percent) and criminal background checks (78 percent), while 76% of job candidates who would have access to confidential employee information had reference background checks conducted that included verifying information provided by the job applicant or communicating with people regarding the job applicant such as former co-workers.

In general, organizations responding to the surveys from SHRM indicated that the following policies and procedures were in place for conducting reference, credit, and/or criminal background checks on job candidates as of 2009:

  • 95% had notified candidates that any false or intentionally misleading information provided in the application process was grounds for retracting job offers;
  • 91% had policies that no criminal background checks were conducted without signed consent from the candidates;
  • 89% had policies that only designated personnel would have access to reference, credit, and/or criminal background check information;
  • 79% had written policies for employees to follow regarding conducting reference background checks; and
  •  78% had standardized questions for the person conducting the reference background check on behalf of the organization, and written policies for employees to follow regarding conducting criminal background checks.

When asked if the number of reference, credit, and/or criminal background checks that their organizations conducted on job applicants increased, decreased, or remained the same as a result of the economic downturn, approximately three out of four respondents replied that the number had remained the same for reference background checks (74 percent), criminal background checks (73 percent), and credit background checks (71 percent). 

For more information on how employers can conduct an effective background check program, contact Employment Screening Resources (ESR).

Sources:

http://www.shrm.org/Research/SurveyFindings/Articles/Pages/ConductingReferenceBackgroundChecks.aspx
http://www.shrm.org/Research/SurveyFindings/Articles/Pages/BackgroundCheckCriminalChecks.aspx
http://www.shrm.org/Research/SurveyFindings/Articles/Pages/BackgroundCheckingGeneral.aspx
http://www.shrm.org/Research/SurveyFindings/Articles/Pages/BackgroundChecking.aspx