3 Tips to Reduce Litigation Risks when Using Credit Checks

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Credit check program tips

Many employers use credit history screening to determine whether job candidates will act with professional integrity. By running a credit check, employers can avoid hiring candidates with a history of negligent financial behavior.

Credit screening becomes especially important when employers are hiring for roles involving access to finances or sensitive financial information. If a person has a history of irresponsible or even criminal financial behavior, then the likelihood that they may repeat that behavior on the job makes them a less attractive candidate.

Although the recent Supreme Court decision of NASA v. Nelson legitimized the use of credit checks during hiring, the practice of credit screening remains under heavy legal scrutiny today by plaintiff’s attorneys and the Equal Employment Opportunity Commission (EEOC).

As the legal and regulatory landscape around credit screening evolves, it is recommended that employers develop their credit screening programs with a focus on mitigating legal risks. Below are some tips for building credit check programs that also mitigate certain legal and regulatory risks.

1. Check State and Federal Regulations

Determine your organization’s legal obligations with respect to the state(s) it operates in. Varying anti-discrimination laws, state credit protection laws, and other applicable laws may affect how you conduct credit checks during hiring. The Fair Credit Reporting Act (FCRA) also provides certain requirements on employers including rules for obtaining consent and giving proper notice to individuals subject to credit screening.

Be sure that your current credit screening program meets all of these existing state and federal requirements.   Additionally, it is vital to highlight and monitor any pending discrimination or credit-related legislation in the states that you operate in, to be sure your organization remains compliant going forward.

2. Evaluate the Current Program

Partner with human resources personnel to determine how credit screening is currently being handled within your organization. Outline all the details of your program, including which job candidates are screened and why, and how the results of the credit screening are evaluated. This will give you a clear picture of where the program can be streamlined or improved.

Confirm that your organization maintains documentation demonstrating the necessity of screening for each position. Document all steps of the credit screening process from consent through to notifications so that you can establish FCRA compliance. To avoid further legal risks, never base hiring decisions on the credit report alone. It is best to give the candidate an opportunity to explain the findings, in case their report has been unjustly tarnished by identity theft or bank errors.

3. Continue to Monitor Legal Risks

If your organization is involved in any pending lawsuits or investigations related to its screening practices, then do not make any changes to your current background screening program. Changing your program could serve as evidence that the prior employment screening program was in some way flawed or discriminatory.

Keep your legal team apprised of any pending legislation, lawsuits, or investigations that could affect future credit screening regulations. Monitor significant court decisions, the actions and opinions of the EEOC, possible amendments to the FCRA and new state laws or amendments to stay abreast of any new credit screening risks.

Credit screening remains an integral part of the hiring process for many employers. An organization can better mitigate the legal risks of credit history screening by continually monitoring the regulatory and legal landscape and adjusting its practices as needed.

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HireRight is a leading provider of on-demand employment background checks, drug and health screening, and electronic Form I-9 and E-Verify solutions that help employers automate, manage and control background screening and related programs.

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The HireRight Blog is provided for informational purposes only. It is not intended to be comprehensive, and is not a substitute for and should not be construed as legal advice. HireRight does not warrant any statements in the HireRight Blog. Any statutes or laws cited herein should be read in their entirety. You should direct to your own experienced legal counsel questions involving your organization’s compliance with or interpretation or application of laws or regulations and any additional legal requirements that may apply.