While only four U.S. states – Hawaii, Oregon, Washington, and most recently Illinois – currently have laws limiting or prohibiting credit checks by employers on job applicants and employees, lawmakers in many U.S. states are currently proposing legislation restricting the use of credit reports for employment screening background checks.

In all, lawmakers in 18 U.S. states are considering bills that limit the use of credit report data for employment screening. These states include: California, Connecticut, Florida, Georgia, Indiana, Kentucky, Maryland, Michigan, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, Ohio, Pennsylvania, Texas, and Vermont.

Key provisions of a few of the bills limiting use of employment credit reports include:

  • California Assembly Bill A.B. 22: California’s Assembly bill limits the ability of employers to utilize consumer credit reports for employment purposes unless the information is “substantially job-related” and refers to managerial positions, state Department of Justice employees, law enforcement, financial institutions, or positions where the law requires credit reports.
  • Florida Senate Bill S.B. 1562: Florida’s bill would limit the ability of employers to use credit report information and make the use of personal credit report data of job applicants by employers as a factor in a hiring decision an “improper employment practice” unless the credit report data is “directly related to the position sought by the applicant.” Even if relevant, the information “may not be the determining factor in whether the applicant is ultimately hired to the position sought.”
  • Michigan House Bill H.B. 4363: Michigan’s bill – the “job applicant credit privacy act” – would prohibit employers from using credit report data to “refuse to hire or to recruit an individual for employment” unless the information is “an established bona fide occupational requirement of the particular position or employment classification” and would allow individuals to bring suit to recover damages for violations of the measure. Like Florida, the Michigan bill would not apply to existing employees, only to job applicants and recruits.
  • Montana House Bill H.B. 601: Montana’s bill would make misuse of credit history data a misdemeanor with a penalty of “$250 for a first offense and no more than $500 for a second or subsequent offense.” The bill would also prohibit employers from using credit report data to take an adverse action against employees or applicants unless the job has certain responsibilities. Even if credit report data use is allowed, employers would be required to notify the employee of its use or risk lawsuits in “defamation, invasion of privacy or negligence” against them from applicants or employees.

A 2010 survey from the Society for Human Resource Management (SHRM) – ‘Background Checking: Conducting Credit Background Checks’ – on the use of credit reports for employment screening background checks revealed that more than half of the responding employers conducted credit checks on at least some of their job applicants:

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

The controversy over whether employers using credit reports for employment screening background checks is discriminatory has increased recently, making the use of credit reports for employment screening the number one background screening trend for 2011 as chosen by Employment Screening Resources (ESR), a San Francisco Bay area background screening firm accredited by The National Association of Professional Background Screeners (NAPBS®).

For a list of all trends in the ESR Top Ten Trends in Background Screening for 2011, visit: https://www.esrcheck.com/Top-Ten-Trends-In-Background-Screening-2011.php.

About Employment Screening Resources (ESR): Founded in 1996 in the San Francisco Bay area with a mission to help employers and employees maintain safe workplaces, Employment Screening Resources (ESR) wrote the book on background checks with ‘The Safe Hiring Manual’ by ESR founder and President Lester Rosen. ESR is Accredited by The National Association of Professional Background Screeners (NAPBS®) and is a Designated E-Verify Employer Agent helping U.S. businesses maintain legal workforces. For more information about Employment Screening Resources, visit https://www.esrcheck.com or email ESR News Editor Thomas Ahearn at [email protected].