employment background screening, credit checks, legislation

New Legislation to Restrict Use of Credit Information in Employment Screening

In the wake of one of the largest data breaches in history, legislation has been introduced in both houses of Congress that would result in an effective overhaul of the credit reporting system in the United States.

While most of us were still reeling from the news that 143 million people had been affected by Equifax’s recent security breach, Representative Maxine Waters (D-CA) and Senator Elizabeth Warren (D-MA) proposed bills in the U.S. House and Senate that would ultimately bring about a number of changes for credit bureaus and consumers. Additionally, the bills would restrict the ways in which consumer credit information could be used for employment purposes.

Credit information is often used by employers for hiring, promotion, and retention purposes, despite the fact that it has never been proven to be an indicator of job performance. Currently, the Fair Credit Reporting Act (FCRA), which governs employment background screening, allows employers to obtain credit information on existing and potential employees, provided those employees have given explicit written permission. If adverse action will be taken against an applicant, the FCRA also requires that the candidate be notified prior to that action being taken, and that the employer offer a copy of the report and a written summary of the candidate’s rights under the FCRA.

While Waters and Warren agree that these protections are important, they also feel that they don’t go far enough. Under the new legislation, employers would only be allowed to conduct a credit check as part of the hiring process if local, state, or federal law requires it, or for national security clearances. Further, hiring managers would be prohibited from asking candidates about prior defaults or bankruptcies during job interviews or on applications.

Amy Traub, a senior policy analyst at Demos, a public-policy think tank in New York, said of existing laws governing credit checks for employment, “These consumer protections are important, yet they are far from sufficient to prevent credit checks from becoming a barrier to employment.” She continued, noting that her research has indicated that weak credit is often correlated to unemployment, little or no health insurance coverage, and the presence of children in a household. When companies use credit history to screen out candidates with poor credit, they are “effectively judging a prospective employee on the basis of economic disadvantage, and effectively multiplying that disadvantage.”

On the other side of the argument, the Association of Certified Fraud Examiners discovered two circumstances that are present in a little more than a third of all fraud cases – employees living beyond their financial means (39%) and employees experiencing financial difficulties (34%). Credit checks, they assert, could help pinpoint employees who might later perpetrate fraud against the company.

Melissa Sorenson, executive director of the National Association of Professional Background Screeners (NAPBS), simply urges lawmakers like Waters and Warren to research how employers are currently using credit history information before restricting access to that information altogether.

Citing the 2017 NAPBS survey conducted by HR.com, Sorenson offered some interesting statistics regarding how credit checks are used today by employers:

  • 62% of employers do not use credit checks at all
  • 25% screen credit history for certain candidates, depending on the position, and
  • A mere 6% of employers have a blanket policy of conducting credit checks on all employees

“Not all financial difficulties will or could lead to fraud,” Sorenson said, “but lawmakers should not tie the hands of employers and undercut fraud prevention measures by outlawing the use of information that shows a correlation between past or current behavior and future fraud.”

We are The Cedalius Group, the employment background screening provider you can trust. We are committed to providing you with the most up-to-date, comprehensive information available regarding all aspects of consumer screening. Call us today at 404.963.9862 or visit us online at www.thecedaliusgroup.com to learn more about how we can help you conduct conscientious searches that reflect true and accurate information for every applicant.

The Cedalius Group offers insight into the background screening industry for educational purposes. We always recommend you consult with your legal counsel to determine practices that best suit your business needs.