Why Employment Credit Checks May Soon be a Thing of the Past
Time 3 Minute Read
Why Employment Credit Checks May Soon be a Thing of the Past

On July 11, 2019, the House Financial Services Committee, led by Chairwoman Maxine Waters (D-CA), considered The Restricting Use of Credit Checks For Employment Decisions Act (the “Act”) as one of four bills designed to reform the Fair Credit Reporting Act (FCRA) and the credit reporting system.

The FCRA is a federal law that regulates the collection of consumers’ credit information and access to their credit reports.  Employers nationwide routinely use background checks – including credit checks – during the hiring process to assess an applicant’s character, fitness, and integrity.  Employment credit checks are typically reserved for applicants seeking positions that require confidentiality and financial integrity (e.g. positions in banking, accounting, investing).  It necessarily follows that any “negative” information that appears on an applicant’s credit check, such as debts incurred by the applicant, loans, and the payment history of those debts and loans, will bear on the applicant’s level of responsibility, ability to meet deadlines, dependability, and performance.  According to a 2012 study cited by the Act’s proponents, titled “Do Job Applicant Credit Histories Predict Job Performance Appraisal Ratings or Termination Decisions?” these checks reveal very little about the applicant’s aptitude as it relates to the position sought.  Proponents of the Act further contend that a credit check fails to account for circumstances not discernable on the face of the report, including unexpected life events such as sudden medical expenses, divorce, or loss of employment.  Thus, in the view of the Act’s proponents, the practical implications associated with employment credit checks often mean perpetuating the cycle of unemployment and poor credit for applicants who desperately need work.

While the Act seeks to address these issues generally, its focus lies in addressing the disparate impact employment credit checks have on African American and Latino communities.  According to recent studies cited in the Act, the Great Recession resulted in a particularly harsh financial impact on African American and Latino communities, which tend to, on average, have lower credit scores as compared to their White counterparts.  These studies found that the practical outcome of the growing use of credit checks, which the Act aims to eliminate, is that racial and ethnic minorities may be disproportionately screened out of positions they are otherwise qualified for, resulting in discriminatory hiring practices.

Taking note of statewide trends of either limiting or eliminating the use of credit checks in hiring, the Act would effectively ban the use of an applicant’s credit information for “most” employment decisions.  The only exceptions identified in the Act are for positions where Federal, State, or local law requires use of a credit check, or where the information is being used with respect to a national security investigation.

While The Restricting Use of Credit Checks For Employment Decisions Act will likely pass the majority-Democrat House of Representatives, we anticipate it will encounter a difficult path through the Republican-controlled Senate.  If passed, employers nationwide will have two years to either adjust or eliminate the use of credit checks for most positions offered during the hiring process

  • Partner

    Bob litigates complex employment, labor and business disputes. Bob is a litigator who represents businesses in resolving their complex labor, employment, trade secret, non-compete and related commercial disputes. He is ...


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