2020Credit Reports
Government Regulations

Written By ESR News Blog Editor Thomas Ahearn

On January 29, 2020, the U.S. House of Representatives passed a legislative package to overhaul the nation’s credit reporting system called the “Comprehensive CREDIT (Credit Reporting Enhancement, Disclosure, Innovation, and Transparency) Act of 2020” (H.R. 3621) that included the “Restricting Use of Credit Checks for Employment Decisions Act” (H.R. 3614). The legislative package is now in the U.S. Senate.

H.R. 3614 would prohibit employers from using credit reports for employment decisions, except when a credit report is required to conduct a background check by Federal, state, or local law, or for a national security clearance. The bill would amend “Section 604. Permissible purposes of consumer reports [15 U.S.C. § 1681b]” in the federal Fair Credit Reporting Act (FCRA) that regulates background checks.

The “Comprehensive CREDIT Act of 2020” would empower consumers with more control of their data and require consumer reporting agencies (CRAs) such as Equifax, Experian, and TransUnion to better ensure that the information on consumer credit reports is accurate and complete. H.R. 3614 has moved to the U.S. Senate where it was received on January 30, 2020. The progress of the bill may be followed here.

The U.S. Chamber of Commerce opposed the Comprehensive Credit Act of 2020, claiming the “legislation would make it more difficult for employers to review the backgrounds of prospective employees, which would make it more difficult to hire for sensitive positions or would otherwise delay the hiring process,” according to a letter the Chamber sent to the House of Representatives on January 27, 2020.

“Credit checks should be used sparingly for the simple reason that it is difficult to correlate what is in a credit report to job qualifications,” said Attorney Lester Rosen, founder and chief executive officer (CEO) of leading global CRA Employment Screening Resources® (ESR), when asked what the passing of the “Comprehensive CREDIT Act of 2020” by the House meant for credit checks by employers.

“Contrary to popular belief, an employment credit report does not have a credit score, since that had no connection to employment. However, it does have a credit history. Most HR professionals understand that a credit report should be limited to just those positions where they can articulate a nexus between the report and job considerations,” explained Rosen, the author of “The Safe Hiring Manual.”  

“The House of Representatives passed a bill that generally does not allow credit reports for employment, and some states have passed laws regulating credit reports and making employers disclose what they are looking for. The best approach is to check with your lawyer and, even then, use credit reports sparingly and only if there is a clear and objective need,” Rosen suggested.

Employers must use caution in using credit checks to make sure that personal financial circumstances are related to the job function or security requirements. Since some states restrict the use of credit reports for employment purposes, a consumer credit report should only be used when credit standing has a direct relationship and a demonstrated risk that is business related to the job or position sought. 

Employment Screening Resources® (ESR) – a leading global background check provider – provides employment purpose credit reports that deliver a profile of the subject’s financial history and offers an article about “States with Laws Regulating Credit Reports for Employment” to help employers comply with regulations on credit checks. To learn more about ESR, visit www.esrcheck.com.

NOTE: Employment Screening Resources® (ESR) does not provide or offer legal services or legal advice of any kind or nature. Any information on this website is for educational purposes only.

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