May an employer run a credit check to evaluate applicants?

Yes, however, the EEOC views a credit check of all applicants without any relevance to the particular job as potentially discriminatory. So, the best practice is to have some legitimate business purpose related to the job applied for in considering an applicant’s creditworthiness. For example, a credit check makes sense if you’re hiring a financial planner but less so if you’re hiring a forklift operator.  If an employer decides to run a credit check, the employer must comply with the procedure found in the Fair Credit Reporting Act.

What procedures are required by the FCRA to obtain a “consumer report” (credit report, driving record, or criminal background check) from a “consumer reporting agency” to use in the screening of applicants?

  1. An employer must obtain written consent separate from an application. Before the request of a “consumer report” from a “consumer reporting agency,” the FCRA requires an employer to notify the applicant that the employer plans to do so and get the applicant’s written authorization. This notice and authorization must be in a separate document with no other information.
  2. Provide a pre-adverse action disclosure. If a report is obtained and there is information included in the report that causes the employer not to hire the applicant, the employer must, before informing the applicant of the decision, provide a separate notice stating the employer plans to take this “adverse action.” The “adverse action” is deciding not to hire this person. With this notice, the employer must include two additional documents: (1) a copy of the credit report and (2) a copy of the notice from the Federal Trade Commission entitled “A Summary of Your Rights Under the Fair Credit Reporting Act” which informs the applicant as to how to challenge any incorrect information that is the report among other things.
  3. Send an adverse action notice. As a result of the requirement to send a pre-adverse action disclosure, an employer must wait some time, presumably to allow the applicant to challenge any incorrect information upon which the employer may be basing your decision before the employer makes its final decision. Once an employer allows a reasonable amount of time to pass and makes a final decision regarding a particular applicant based on his or her credit report, the employer must provide the applicant with another document called an “Adverse Action Notice.” The notice must include notification of the employer’s decision not to hire the applicant, provide the name, address, and phone number of the contractor used to obtain the credit report, provide information on the applicant’s rights, including their right to dispute the report and the right to obtain an additional copy of the report that led to the decision.

Next Tool Kit Article: Drug Testing >>

<< Screening Candidates Using Social Media

Return to Employment Law Tool Kit

The information herein is not legal advice. The information is in the form of legal education and is intended to provide general information about the matter discussed.  The above is not, nor is it intended to be, legal advice and does not create an attorney/client relationship.