Excerpted from a CNN Story by Jeanne Sahadl
A background check can sink a job offer if prospective employers don’t like what they see. While they can request to have a lot of information about a job candidate’s past included in such a report, increasingly they are no longer allowed to request people’s credit history.
New York just became the 11th state to prohibit employers from using individuals’ credit reports when making employment decisions, except for certain types of jobs.
The new law goes into effect on April 18.
The other states with similar (although not identical) laws on the books are: California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. In addition, similar laws exist at the local level in five cities (New York City; the District of Columbia; Chicago; Madison, Wisconsin; and Philadelphia) plus Cook County, Illinois.
Unlike the laws in the other states, the reach of the New York State statute may apply across the country. “As a practical matter, this means an individual who lives in New York but applies for a position in another state whose credit history is obtained for employment purposes may be covered by the New York credit history discrimination law,” attorney Stephen Fuchs, a shareholder at employer-side law firm Littler Mendelson, wrote in a blog post.
As more states restrict the use of credit histories in job decisions, employers pulling them may be going down, even in places that don’t prohibit the practice.
National employers … tend to want to do the same thing nationwide. And as the number of jurisdictions with restrictions has grown, I have seen employers say, ‘Do we really need to check credit history and why?’ and they do away with it,” Fuchs told CNN.
Still, credit reports are used in many cases
That said, even in states that restrict credit report use, employers are still permitted to pull reports for any role that the state statute identifies as an exception.
Those roles typically include law enforcement jobs, roles that would give a person access to intelligence or national security information, and jobs with control of company funds or access to trade secrets, Fuchs said.
In securities and financial institutions, pulling a person’s credit report is permitted for certain types of jobs such as those subject to financial regulatory oversight, he noted.
Elements that may raise eyebrows
There is no list of red flags on a credit report for which every employer would kill a job offer. And it’s worth remembering a credit report is only one of many factors in a holistic background check.
But, generally speaking, “organizations are looking for volume and recency of potentially negative information,” said Melissa Sorenson, executive director of the Professional Background Screening Association. That negative information includes long overdue debt.
“Employers … may be concerned by accounts that are seriously delinquent, sent to collections, or written off, because such items can signal financial distress or poor debt management, particularly for roles involving fiduciary responsibility, access to funds, or sensitive financial data,” said Rima Hopkins, an HR knowledge adviser at SHRM, the leading association for human resource professionals, in a written reply to CNN.
Hopkins noted, however, that “employers must follow strict procedural safeguards and give candidates the opportunity to review and respond before a hiring decision is affected. As a result, while past-due and collection debt may raise concerns in job-relevant contexts, employers are expected to connect those concerns to legitimate business necessity and to avoid using credit information in a way that is overly broad or discriminatory.”
Also, she added, organizations may give “little or no weight” to medical debts or student loans, especially if those debts are not related to the nature of the job opening.
For the full story, please click here.