States Place New Limits on Use of Credit Checks in Employment Screening

As unemployment and other hardships continue to impact applicants’ credit reports, state lawmakers are increasingly scrutinizing the use of credit checks for pre-employment screening purposes. Recently, Illinois became the fourth state to pass a law (WA, OR, and HI have already passed similar legislation) that now restricts the use of credit history as part of the employment screening process and hiring decision for most positions, with a few specific exceptions, according to SHRM. There are currently 15 other states including the District of Columbia that have introduced legislation and even federal laws being considered that limit the use of credit history checks as part of the employment background screening process. Even for employers not hiring in states with current credit check legislation, these laws could have widespread implications.

Under the new Illinois law which goes into effect January 1, 2011, employers must evaluate which positions could qualify to use credit history as part of the employment screening process and which do not. There are six exceptions where it is deemed appropriate under the Illinois law to review credit history as part of the background screening procedure:

1. the position has unsupervised access to cash or certain assets valued at $2,500 or more
2. the position has signing authority for transactions of $100 or more
3. the position is a leadership position that is involved in setting the direction or control of the business
4. the position has access to protected information such as personal or confidential information, financial information, trade secrets or state or national security information
5. the US Department of Labor or IL Department of Labor has determined the position has a bona fide need for a credit check
6. state or federal law requires the individuals credit history or that the person be bonded or secured to hold the position

Certain industries and agencies are also excluded from the new Illinois law, including those in the financial, insurance, law enforcement, state and local government agencies that require a credit report, and qualified debt collection agencies.

With the implementation and introduction of new legislation across the country, checking credit history for employment is becoming a more complex issue with greater potential liabilities. It’s important that organizations evaluate their employment screening program and policies to ensure they comply with all federal and state laws, while meeting the organization’s goals to hire the best, most qualified candidates and provide a safe environment to protect confidential employee and customer data.

To learn more about meeting compliance requirements during background screening, including the use of credit reports, download HireRight’s complimentary whitepaper: Fair Credit Reporting Act (FCRA) Basics.

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