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March 27, 2015

There are currently 10 US states that limit employers' use of credit information in employment: California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. These states have restricted the use of applicant and employee credit history, and there are several more states that have pending legislation which may have similar restrictions coming. Since 2007, laws restricting the use of credit screening in employment decisions have become common. If you are an employer in one of the ten states that have credit restricting laws passed, your policies must be in compliance with the state law in employment decisions. An employer should have policies and procedures in place to ensure that the use of the credit information is relevant and fair. The following is a summary of the current restrictions in each of the ten states:


In October of 2011, California set limits on the use of credit reports for employment purposes. California Assembly bill AB 22 prohibits the use of credit reports. Use of credit reports - An employer or prospective employer shall not use a consumer credit report for employment purposes unless the person will be employed in specific positions. The law restricts employers and prospective employers, except financial institutions subject to 15 US Code 6801-6809 (the Gramm Leach Bliley Act), from obtaining a consumer credit report unless the position sought involves: Exceptions are for position of the person for whom the report is sought is one of the following:
  1. Within the California state Department of Justice;
  2. Law enforcement/sworn peace officer; Managerial position (an example of this person would be a person who manages the company/department of the company, authority to make hiring/retention decisions, manage two or more persons),
  3. Position for which the information contained in the reported is required by law to be obtained/disclosed;
  4. A Position with regular access to credit card applications in a retail establishment (but excluding positions for routine credit card application processing):
  5. A position/job responsibility for which the person is to be named signatory on the employer’s bank/credit card account/authorized to transfer money for the company or authorized to enter into financial contracts on employer’s behalf;
  6. If the position involves access to confidential/proprietary information; or
  7. A position with regular access to $10, 000 or more in cash.
If an exception is met, a written notice is required informing the applicant for whom the consumer credit report is in reference to that the information is being obtained for employment purposes and to also inform the person of the specific reason for obtaining the credit report. 


July 2013, (SB13-018), the bill 'Employment Opportunity Act' prohibits an employer's use of how a consumer’s credit information in making employment related decisions. The “Employment Opportunity Law” states:
  1. The consumer credit information may not be obtained for employment purposes if the information is unrelated to the job;
  2. Requires and employer to disclose to an employee/applicant for employment when the employer uses the employee's consumer credit information to take adverse action against him or her and the particular credit information upon which the employer relied;
  3. Authorizes and employee aggrieved by violation of the above previsions to bring suit for an injunction, damages, or both; and
  4. Requires the department of labor and employment to enforce the laws related to employer use of consumer credit information.
There are two types of employers permitted to use consumer credit information for employment purposes under the law: Banks or financial institutions and employers required by law to conduct credit checks. The remaining employers may only review credit reports for executive/management personal and positions that involve contracts with defense, intelligence, national security, or space agencies of the federal government. 


Effective October 2011, SB 361 prohibits certain employers from using credit reports to make employment decisions or hiring decision on current employees or applicants. Exceptions are employers that are financial institutions as defined under law, credit reports required to be obtained by employers by law, and credit reports substantially related to the employee's current or potential job. Exceptions:
  1. Is a managerial position that involves setting the direction or control of a business, division, unit or an agency of a business;
  2. Involves access to personal or financial information of customers, employees or the employer, other than information customarily provided in a retail transaction;
  3. Involves a fiduciary responsibility to the employer, as defined under the law;
  4. Provides an expense account or corporate debit/credit card;
  5. Provides access to certain confidential or proprietary business information, as defined under the law; or
  6. Involves access to the employer's nonfinancial assets valued at $2005 or more, including, but not limited to, museum and library collections and to prescription drugs and other pharmaceuticals.


Hawaii House Bill 31 SD1 CD1 “The Hawaiian Fair Employment Practices Act” passed on July 2009, making it an unlawful discriminatory practice for an employer to make employment-related decisions based on an individual's credit history or credit report. Inquiry into and consideration of a prospective employee’s credit history or credit report may take place only after the prospective employee has received a conditional offer of employment, which may be withdrawn if information in the credit history or credit report is "directly related to a bona fide occupational qualification". This law does not apply if the employer is expressly permitted or required to inquire into an individual’s credit history for employment purposes pursuant to federal or state law, or to managerial or supervisory employees, or certain financial institutions. The law sets out a specific definition of what constitutes a “Managerial” or “Supervisory” employee.


New Illinois Law prohibits pre-employment credit checks on most job applicants. “Employee Credit Privacy Act” (Illinois House Bill 4658), January 2011, passed a law prohibiting employers in the state from discriminating based on the credit history of job seekers or employees. This law prohibits employers from inquiring about or using an employee’s or prospective employee’s credit history as a basis for employment, recruitment, discharge, or compensation. Employers who violate the new law can be subject to civil liability for damages or injunctive relief. Under the law, employers may access credit checks under limited circumstances, including positions that involve:
  1. Bonding/security per state/federal law;
  2. Unsupervised access to more than $2500;
  3. Signatory power over businesses assets of more than $100;
  4. Management and control of the business; and
  5. Access to personal, financial or confidential information, trade secrets, or state/national security information.


“Job Applicant Fairness Act” (Maryland House Bill 87), An employer may not use an applicant’s or employee’s credit report or credit history in determining whether to deny employment to the applicant, discharge the employee, or determine compensation or the terms, conditions, or privileges of employment, effective October 2011. “Job Applicant Fairness Act” reads as follows:

(c) When employer may request or use employee's credit history. -- (1) An employer may request or use an applicant's or employee's credit report or credit history if: (i) 1. the applicant has received an offer of employment; and 2. the credit report or credit history will be used for a purpose other than a purpose prohibited by subsection (b) of this section; or (ii) the employer has a bona fide purpose for requesting or using information in the credit report or credit history that is: 1. substantially job-related; and 2. disclosed in writing to the employee or applicant. (2) For the purposes of this subsection, a position for which an employer has a bona fide purpose that is substantially job-related for requesting or using information in a credit report or credit history includes a position that: (i) is managerial and involves setting the direction or control of a business, or a department, division, unit, or agency of a business; (ii) involves access to personal information, as defined in § 14-3501 of the Commercial Law Article, of a customer, employee, or employer, except for personal information customarily provided in a retail transaction; (iii) involves a fiduciary responsibility to the employer, including the authority to issue payments, collect debts, transfer money, or enter into contracts; (iv) is provided an expense account or a corporate debit or credit card; or (v) has access to: 1. information, including a formula, pattern, compilation, program, device, method, technique, or process, that: A. derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from the disclosure or use of the information; and B. is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; or 2. other confidential business information

The Act applies to Maryland employers of any size, some employers are excluded from the Act’s prohibitions, including financial institutions and employers required under federal or state law to inquire into the credit history of job applicants or employees. The Act also requires that employers wishing to request or use credit information of job applicants and employees for a bona fide purpose must disclose the intent to do so in writing to the job applicant or employee. 


Effective October 2013, Senate Bill 127 (SB 127) restricts an employer's use of credit information in making employment decisions. The law makes it unlawful for any employer in the state to request or require any prospective or current employee to submit a consumer credit report as a condition of employment. Employers are also prohibited from discharging, discriminating against, or disciplining a prospective or current employee who refuses to submit a consumer credit report, files a complaint, initiates a legal proceeding, testifies, or otherwise exercises rights afforded to the individual under this law. Further employers may not discharge, discriminate, or discipline on the basis of the results of a credit report. This does not apply if:
  1. The employer is required or authorized, pursuant to state or federal law, to use a consumer credit report or other credit information for that purpose;
  2. The employer reasonably believes that the employee or prospective employee has engaged in specific activity which may constitute a violation of state or federal law; or
  3. The information contained in the consumer credit report or other credit information is “job related” or reasonably related to the position for which the employee or prospective employee is being evaluated for employment, promotion, reassignment or retention as an employee.


Effective July 2010, Oregon Senate Bill (SB) 1045, making it unlawful employment practice for an employer to obtain or use for employment purposes information contained in the credit history of an applicant for employment or an employee, or to refuse to hire, discharge, demote, suspend, retaliate or otherwise discriminate against an applicant or an employee with regard to promotion, compensation, or the terms, conditions or privileges of employment based on information in the credit history of the applicant or employee. Exceptions to the prohibition of the use of credit histories in employment decisions include:
  1. Employees that are financial institutions insured by a federal agency/credit unions;
  2. Employers that are required by state or federal law to use Individual credit history for employment purposes;
  3. Employment of a public safety officers; or
  4. Employers who can demonstrate that the credit information is "substantially job related" to certain positions AND the employer's reasons for the use of such information are disclosed to the individual in writing.


Effective July 2012, Vermont Act No. 154 (S. 95), prohibits employers, subject to exceptions, from using credit reports or credit history for employment purposes. "Credit history" means any information obtained from a third party that reflects or pertains to an applicant or employee's "borrowing or repaying behavior" or "financial condition or ability to meet financial obligations", even if that information is not contained in a "credit report". Employers are exempt from both restrictions if one or more of the following conditions are met:
  1. The information is required by state or federal law or regulation;
  2. The position of employment involved access to "confidential financial information:;
  3. The employer is a financial institution or a credit union as defined under applicable state law;
  4. The applicant or employee will or does work as a law enforcement officer, emergency medical personnel, or a firefighter;
  5. The position will require the applicant or employee to have a financial fiduciary responsibility to the employer or a client of the employer, including the authority to issue payments, collect debts, transfer money, or enter into contracts;
  6. The employer can demonstrate that the information is a valid and reliable predictor of employee performance in the specific position of employment; or
  7. The position of employment involves access to an employer's payroll information.
Even if an employer is exempt from the general requirement that employers not use credit reports or credit history for employment purposes, the new law states that exempt employers "may not use an employee's or applicant's credit report or history as the sole factor" in employment related decisions. The Act requires employers to first obtain the written consent of the employee or applicant to the disclosure of the credit information and must also disclose in writing its reasons for accessing the report. If an employer intends to take an adverse employment action based on any contents of the credit report, the employer must notify the applicant or employee in writing of its reasons for doing so and also offer the subject an opportunity to contest the accuracy of the credit report or credit history.


Effective July 2007, Washington SB 5827, Revised Code of Washington (RCW), states that an employer not procure a consumer report for employment purposes where any information in the report bears on the consumer's credit worthiness, credit standing, or credit capacity. Unless the information is:
  1. "Substantially job related" and the employer's reasons for the use of such information are disclosed to the consumer in writing (legislation does not provide guidance on which jobs fall within the category of "substantially job related"); or
  2. Required by law.
Employers in the state of Washington utilizing employment credit reports needed to change their forms, carefully review any job position where a credit report is requested, and communicate to job applicants the reason a credit report is substantially related to a particular job.

It is recommended that employers in all states keep current with pending legislation, and attain a complete understanding on how the law effects the hiring process both now and into the future. There are a number of additional and supplementary ways to compile a diligent overview of potential employees, including comprehensive background checks that have the strong potential to display red flags regarding gambling, debt, and any improprieties undertaken by the individual. Therefore, even without the availability of credit information, an investigative agency can certainly present enough pertinent information to enable wise hiring choices. 

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