Tag Archives: 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

Proposed Credit Report Law in Oregon Would Limit Employment Screening Background Checks

By Les Rosen, Employment Screening Resources

Oregon may be following Hawaii and Washington as states placing limits on the use of credit repots for employment purposes when the Oregon legislature passed Senate Bill 1045 and sent it  to the governor on February 22, 2010.

The bill would prevent employers from utilizing credit reports in employment including hiring, discharge, promotion, and compensation except in the following circumstances: circumstances:
1.  Employers that are federally insured banks or credit unions;
2.  Employers that are required by state or federal law to use Individual credit history for employment purposes;
3.   The employment of a public safety officer, or
4.  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.

For the actual code language, see <a href=”http://gov.oregonlive.com/bill/SB1045/”>http://gov.oregonlive.com/bill/SB1045/</a>

Private employers in Oregon, assuming the bill is signed into law, would need to carefully review their justification for a credit report and be prepared to state those reason in writing to an applicant before a credit report is requested or obtained.

The arguments over the use of credit reports in Oregon mirrors the national conversation on the relevance and fairness of credit reports for employment.  The primary argument against credit reports  is that a credit history has no relationship to the ability to perform the job and in fact can result in unlawful discrimination.  In addition, credit reports are criticized for being inaccurate.   The argument is also made that applicants whose financial situation has been severely impacted by the recession are victimized again when a credit report makes it even harder to get a job, creating a  Catch-22.

The argument in favor of credit reports is that businesses need the flexibility to hire appropriate employees, and that a credit report can be critical to prevent embezzlement or other problems where someone is hired to a position that has access to cash or assets.   Furthermore, an employer does not see the credit score.  It is an urban myth that credit scores are used for employment.

It should be noted that Employment Screening Resources ( ESR) and many other background screening firms consistently recommend that credit reports be reserved for positions where there is  a clear business justification, and to keep in mind that credit reports can contain information that is old, incorrect, or not relevant to the job. 

If passed, Oregon would be the third state to have placed limits on credit report.  Washington was the first state, which required that employers.  Under a Washington  law passed in 2007, employers cannot obtain a credit report as part of a background check unless the information is: substantially job related and the employer’s reasons for the use of such information are disclosed to the consumer in writing; or (ii) Required by law.  See: 
http://www.esrcheck.com/newsletter/archives/June_2007.php

In 2009, Hawaii also placed limits on credit reports by amending the Hawaiian Fair Employment Practices Act and 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 a bona fide occupational qualification.  The law also requires that here fist be a conditional job offer.  Hawaii Revised Statues Sec. 378-2(8).

Similar to the proposed Oregon law, there are certain carve-outs in the Hawaii law. The law makes exceptions for employers that are expressly permitted to inquire into credit history or a credit report by federal or state law, financial institutions that are insured by a federal agency or to managerial or supervisory employees. The law sets out a specific definition of what constitutes a “Managerial” or “Supervisory” employee.  See: 
http://www.esrcheck.com/wordpress/856/hawaii-latest-state-to-put-limits-on-use-of-credit-reports

Other states are looking at similar measures.  California has passed a law twice that would have severely curtailed the use of credit reports, which were both vetoed by the Governor.  Employers, Human Resources and Security professionals should expect to see more activity on this issue.

Employment Screening Resources quoted in article on MSNBC on credit reports

By Jared Callahan, Employment Screening Resources

An article in MSNBC examining the use of credit reports and employment quoted Employment Screening Resources President Lester Rosen on how credit reports are used in screening.  

The article concerned the current controversy over the use of credit reports and the suggestion that in a recession, that credit reports can harm job applicants.  See:  http://www.msnbc.msn.com/id/35512038/ns/business-eye_on_the_economy/ 

ESR was quoted in two areas: 

And 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, said Lester S. Rosen, CEO of ESRcheck, which screens job candidates for companies.

“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 to running a credit report?’” he said.

The article also indicated that: 

Though many employers run credit checks on some applicants, relatively few are turned down for a job because of bad credit, according to Rosen of ESRcheck.
“It’s only when they’re down to a finalist or one or two finalists that they’ll run a background check,” he said. “And in the real world, what we see is that it really takes something pretty horrendous in the credit report to reverse a decision that they’re vested in.”

However, the article also clarified that “credit scores” are NOT used for employment decisions, which is common myth.   Unfortunately, many critics of the use of employment credit reports cannot seem to comprehend that credit scores are NOT used for employment.  Although there can be many opinions, it is more helpful if the discussion is based upon facts, as opposed to assumptions, or miss-information.  

ESR has consistently recommend that credit reports be reserved for positions where there is  a clear business justification, and to keep in mind that credit reports can contain information that is old, incorrect, or not relevant to the job.  

For more information on credit reports and employment, view a White Paper prepared jointly by LexisNexis and Employment Screening Resources called:  The Use of Credit Reports in Employment Background Screening –an Overview for Job Applicants http://www.esrcheck.com/docs/credit_report_whitepaper.pdf

(Coming shortly:  article on proposed restrictions in the state of Oregon on credit reports)

The Unfair Use of Credit Reports and Criminal Records and the EEOC E-Race Initiative

By Jared Callahan, Employment Screening Resources

According to an article in HR Morning, the two biggest headaches for employers when it comes to hiring are the blanket  exclusion of individuals with poor credit histories or a criminal, record, and not showing a correlation between background checks and the job itself. 

The author notes that in response to seeing an increase in claims of discrimination based upon criminal records and credit reports,  the EEOC began the E-RACE Initiative (Eradicating Racism And Colorism from Employment).  This excellent article can be found at:

http://www.hrmorning.com/recruiting-eeoc-warns-about-background-checks/

As ESR has advised employer on a number of occasion, the unfair use of credit reports or the automatic exclusion of individuals with criminal records without considering if there is a business justification are two big area of potential liability for employers.  The Safe Hiring Manuel, the first comprehensive book on background checks that was written by ESR goes into these issues in detail.  It can result in an action by the EEOC or a lawsuit for discrimination.  Needless to say, employers would rather not face either.  As noted in a recent ESR blog, the EEOC has brought a legal action against one national employer alleging the discriminatory use of credit reports and criminal records. http://www.esrcheck.com/wordpress/1057/new-eeoc-lawsuit-for-discrimination-based-on-credit-report-and-criminal-records 

The one thing that small and medium businesses do not want to do is to use screening software that makes automated decision.  That is a big risk taken for no good reason.  

To attempt to minimize exposure, employers may want review the following articles by ESR:

  1. http://www.esrcheck.com/wordpress/815/basics-of-credit-reports-and-background-checks
  2. http://www.esrcheck.com/wordpress/942/the-basics-of-criminal-records-searches

2010 Trend on Increased focus on whether credit reports and criminal records are discriminatory

By Les Rosen, Employment Screening Resources

2010 Trends in Screening–Trend One:

Employment Screening Resources (ESR), a leading national online employment screening background firm, is releasing the ESR “Third Annual Top Ten Trends in the Pre-Employment Background Screening Industry” for 2010. ESR has identified new trends that are starting to make a difference, as well as old trends that have evolved as the screening industry matures and as plaintiff’s attorneys, including class action lawyers, have started to focus on background checks. 

This is the first of the ten trends ESR will be tracking in 2010.  The ten trends will be released over the next three weeks:

  1. Increased focus on whether credit reports and criminal records are discriminatory: When the EEOC filed a lawsuit against a national employer in October 2009 alleging that credit reports and criminal records were being used to discriminate against members of protected groups, it did not come as much of a surprise to industry watchers.  (See ESR blog at: http://www.esrcheck.com/wordpress/1057/new-eeoc-lawsuit-for-discrimination-based-on-credit-report-and-criminal-records.)  There has been a steady drumbeat of concern about credit reports and criminal records.  Credit reports have come under increasing criticism as reported in the media for being inherently unfair and potentially discriminatory. California, for example, has twice passed laws that would have severely limited credit reports (although both were vetoed by the governor).  A bill has been introduced in Congress to amend the federal Fair Credit Reporting Act (FCRA) to outright prohibit the use of credit reports for employment, and it has 46 co-sponsors in the House of Representatives. In 2009, Hawaii passed a bill limiting credit reports.  (See past ESR blogs on the pros and cons of credit reports.) The use of criminal records is also getting scrutinized. New York in 2009 passed new laws to ensure that employers were not automatically rejecting applicants with criminal records without considering the individual on his/her merits.  In recent years, the Conference of Mayors has addressed the issue of criminal records baring ex-offenders from getting a second chance, and the State of Minnesota joined a number of large cities in adopting a “ban the box” approach to governmental employment , meaning that questions about a past criminal record are not requested initially on an employment application in order not to deter ex-offenders form even applying. On one hand, without exercising due diligence, firms can sued for negligent hiring, suffer financial loss, and/or put public safety at risk if “red flags” are not located. On the other hand, critics are concerned that with undue emphasis on credit reports or criminal records, people are being shut out of the workforce.  For instance, unless ex-offenders can get a job, there is a high likelihood of recidivism which means more taxpayer dollars are being spent on prisons instead of schools or hospitals.  The bottom-line is that screening occurs at the intersection between concerns over security and safety on one hand, and privacy and fairness on the other, and society is constantly defining the boundaries. Of course, it is interesting to note that nearly every time a legislator objects because there is too much screening, there is often a call by some other elected official for even more screening after it is revealed that some crime or offenses occurred where an inappropriate applicant was hired without a sufficient background check.  A listing of proposed legislation related to screening shows that legislators are both calling for increased privacy and protections for consumers at the same time they are introducing bills to increase background check requirements.  This underscores the fact the screening occurs at the intersection where privacy and security concerns meet, and the lines are constantly being tested. One area where employers need to review their practices is on using automated scoring matrixes where a candidate is given a green, orange, or red light.  That sort of automation where an individual is judged entirety by his/her membership in a particular category instead of his/her personal abilities is precisely the type of process that is likely to get some unwarranted attention in the courts as a discriminatory practice. This practice presents dangers to large employers and small and medium enterprises certainly should not be engaging in automated decision making based on background checks. 

Job Hunting and Credit Reports

For some reason, there are individuals and groups bent on scaring job applicants about credit reports by spreading miss-information that is just plain wrong.  Whether these people are just not well informed, or have their own agenda to push, the fact remains that job applicants are under enough stress without having to worry about things that are simply not true.

In previous blogs, ESR debunked two commonly held myths. See: http://www.esrcheck.com/wordpress/815/basics-of-credit-reports-and-background-checks.

First, employers do NOT obtain your credit score if they order an employment credit report. Credit score has no relationship to job performance and is simply not provided to employers.  The reports do include a credit history, but not a credit score.

Secondly, employers are not running credit scores as some sort of insidious conspiracy deny jobs to applicants.  Employers only run credit reports AFTER an employer has gone through the time, cost and effort to find the right candidate, usually from a large field of applicants. An employer does not invest money in a background report just to find ways not to hire.  When an employer initiates a background check, it is because they are interested in hiring the applicant and are conducting due diligence to make sure there is no reason not to hire.

Another myth is that employers are running credit reports in large numbers on all applicants.  In fact, even though studies show a significant usage by employer of credit reports, they are not widely used on all applicants.  Most employers and Human Resources professionals understand that credit reports should be limited to those jobs where there is a business justification, such as positions with access to cash, assets or personal information or other sensitive positions.

What should a job applicant do regarding credit reports and job hunting?

First, understand that if you get to the point where an employer is running a background check, that is great news.  It means you made it though the hiring process and that you are most likely a finalist for a job.

It also means that the employer has spent considerable time recruiting, interviewing and making decisions, and that you rose to the top after the employer has reviewed lots of other resumes and applications.

Secondly, if you are concerned that a background check may include a credit report, do not be the last to know what your credit report may say.  As a consumer, you are entitled to a free credit report YEARLY from each of the credit bureaus.  A consumer just needs to go to https://www.annualcreditreport.com/cra/index.jsp to run a free report.  If you see some sort of error, it would be a good idea to get that corrected as soon as possible.  There is a well established procedure for contacting the credit bureaus to bring an error to their attention and request it be remedied.

Third, if you are concerned that your credit history may reflect negatively, than have a discussion ahead of time with the hiring manger or Human Resources about your credit reports.  As most experienced Human Resources professionals can tell you, information honestly disclosed by an applicant has much less impact than information the employer discovers for themselves.

Also keep in mind that HR professionals understands that people have to deal with the realities of life. For example if a consumer was undergoing economic stress due to the recession, and relied on credit cards, or there was a medical issue that caused bills, let HR or the hiring manager know.  Also keep in mind that the only reason you are having this discussion is that the firm is seriously considering hiring you, and has gone through allot of time and effort to make that decision, including reviewing numerous other resumes.

Fourth, applicants need to keep in mind that they have rights.  Under 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 on a standalone document has been given.  If the employer utilizes the credit report in any way not to hire, an applicant is entitled to a copy of their credit report, a pre- adverse action notice as well as a statement of their rights. Before any decision becomes final, the applicant also has the right to challenge the credit report before any denial of employment is made final.

The bottom-line:  If an employer feels a credit report is job related, and a consumer is concerned about that, keep in mind that the employer has made you a finalist, and therefore has an interest in hiring you.  You were evaluated without the employer having any idea of what was in the credit report.  If there are negative entries, be prepared to share it before the credit report is run. (ESR advises employers by the way not to utilize credit reports unless there is a clear business justification and the use is non-discriminatory and to take into account that credit reports can contain errors or material not relevant to employment.)

One other interesting point: there is no evidence that employers routinely engage in pulling back job offers after the review of the credit report.  There are certainly anecdotal stories, but on the whole, once an employer decides they want a particular person, and they have spent time and effort to make that decision, it usually takes something significant that was unexpected for an employer to change their minds.