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Credit Reports and Background Checks

February 6, 2013 by  
Filed under Blog, Compliance, News

Credit reports have long been a part of many pre-employment background screening reports. Most often credit reports are used by employers when evaluating applicants for ‘financially sensitive’ positions (CFO, Controller, etc).  Employers might also request credit reports for applicant’s who will have direct access to company funds, or for cash handling positions or positions which provide access to sensitive consumer information such as bank accounts and social security numbers. The conventional wisdom is that an applicant who might be facing his/her own financial difficulties could: A) face more temptation than his/her co-workers to steal from the company, and B) manage company funds in the same manner he/she manages his/her own personal finances.  Granted, bad credit is not always an indication of reckless financial decisions.  Medical emergencies coupled with the lack of health insurance, divorce and other life situations can create difficult  financial burdens on otherwise responsible consumers.  Finally, credit reports can provide valuable identifiers such as names, addresses and a list of employers.  This information is often used to determine the most relevant jurisdictions and names to search for criminal records.  It is also worth noting that an employment credit report does not place a ‘hard’ inquiry an applicant’s credit file and therefore will not lower the applicant’s credit score.

Recent legislation in many states have essentially prohibited the use of credit reports in the pre-employment screening process.  The following states either restrict or prohibit the use of credit reports in the pre-employment screening process: CA, CT, HI, IL, MD, OR, WA, VT.  This means an employer located in any of the aforementioned states, or an employer requesting a background check report on a current resident of any of the aforementioned states should refrain from requesting a credit report in a pre-employment background check.  Furthermore, an employer in California, or an employer requesting a credit report on a current California resident must disclose the reason for requesting a credit report; these reasons include: Executive Exemption, State Dept. of Justice, Law Enforcement, Required by Law, Access to PII, Financial Transactions, Confidential Information, Access to 10K+ Cash.  An employer in California or requesting a background check on a resident of California may not request a credit report for any other reason.

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