Colorado has now joined 8 other states to prohibit the use of credit reports for employment background check purposes. The Senate bill (SB18) was signed into law by Colorado Gov. John Hickenlooper on April 19, 2013 and will go into effect July 01, 2013.
Several other states are considering similar laws to limit the use of credit reports in hiring decisions. In addition, the Equal Employment Act bill has been introduced that would amend the Fair Credit Reporting Act to eliminate the use of credit reports for employment screening on a national level.
There are exceptions to this law that allow for the use of credit reports which include:
- the employer is a bank or financial institution;
- the report is required by law; or
- the report is “substantially related to the employee’s current or potential job” and the employer has a bona fide purpose for making the request, which is disclosed in writing to the applicant or employee.
Under the new Colorado law, “substantially related to the employee’s current or potential job” means that the position:
- constitutes executive or management personnel (or officers or employees who constitute professional staff to executive and management personnel), and involves one or more of the following:
setting the direction or control of a business, division, unit, or an agency of a business;
a fiduciary responsibility to the employer;
access to customers’, employees’, or the employer’s personal or financial information other than information customarily provided in a retail transaction; or
the authority to issue payments, collect debts, or enter into contracts; or
- involves contracts with defense, intelligence, national security, or space agencies of the federal government
Roughly 47% of employers use credit reports in hiring decisions according to the Society for Human Resource Management.
There is continuing pressure to eliminate the use of credit reports altogether for pre employment background checks as opposition groups see them as discriminatory to certain segments of people including minorities, divorcees, college students and the disabled.
Many individuals have poor credit due to medical collections and this can adversely affect the background screening resulting in the individual not being hired. Just one unpaid medical bill could severely damage a credit score.
While proponents say employers have the right to know the financial history of an applicant particularly if it relates to the position – one that involves financial transactions.
Employers must evaluate their screening procedures to ensure compliance with the FCRA and State laws. This includes authorization forms and adverse action documentation. Employers must also monitor legislation (including pending) such as the Equal Employment Act for All and the Equal Employment Opportunity Commission to be certain of the requirements related to employment screening.