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: 
https://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: 
https://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.