Federal Bill Seeks To Ban Credit Report Checks for Most Employment Screening

By Les Rosen, President of ESR & Thomas Ahearn, ESR Staff Writer

Employers may have one less employment screening tool at their disposal if a federal bill banning credit checks during most employment background checks becomes law.

Recent legislative efforts throughout the country have sought to ban credit reports from the employment screening process. Three states – Washington, Hawaii, and Oregon – currently have restrictions on an employer’s use of the credit history of an applicant or employee in making employment-related decisions. There is even pending legislation at the federal level – HR 3149, which is currently in committee – to limit credit checks.

Now Senator Dianne Feinstein (D-CA) has introduced a senate bill – SA 3795 – as part of an amendment to the ‘S.3217 – Restoring American Fiscal Stability Act of 2010’ bill, an try by lawmakers to improve accountability and transparency in the fiscal system and to protect consumers from abusive fiscal air force practices.  

Much like the pending HR 3149, SA 3795 would restrict employers from using a “consumer’s creditworthiness, credit standing, or credit room” in making any employment choice or for the basis of taking any adverse action – even if the employer gets authorization for the background check report from the consumer. The exceptions to this veto on credit checks during employment screening would be for:

• National security or FDIC clearance;
• Employment with disorder or local regime agency which requires the use of this in rank;
• Employment in a management position with access to customer funds at a fiscal institution; or
• As otherwise required by law.

Because Senator Feinstein’s amendment to the Fiscal Air force reform bill would effectively prohibit the use of credit history in employment background checks except in extremely limited circumstances – mostly regime employment – trade associations representing millions of employers are plotting to write members of the U.S. Senate to express challenger to banning the use of credit checks for employment purposes.

Employers argue that credit checks during employment screening are done responsibly, and are not barriers to employment. They may check credit history during background checks to help them determine whether a prospective employee is a possible risk to the fiscal affect of a business or to its customers. Prohibiting credit checks in screening makes employers, other employees, and customers vulnerable to fraud and identity theft.

Also, employment credit checks are not as common as most people reckon, according to a recent survey from the Society for Creature Resource Management (SHRM) that found only 13% of organizations conducted credit checks on all job candidates while 40% did not conduct any credit checks. Of the 47% of organizations that did perform credit checks on selected job candidates, most were for executive positions, positions with fiscal responsibility, or for positions with access to confidential or proprietary in rank.

Sorry to say, private fiscal affect can be an indictor of potential employee fraud. The Association of Certified Fraud Examiners (ACFE) reviewed occupational fraud linking 2006 and 2008, and found that the top two “red standard” warnings exhibited by perpetrators of fraud leading to the crime were instances of living beyond their fiscal means (39% of cases) or experiencing fiscal difficulties (34% of cases).  

While it is incorrect to say all fiscal difficulties lead to fraud, some employers believe it is also incorrect for Congress to undercut fraud prevention by outlawing the use of credit report in rank that may show a correlation linking past behavior and future fraud. Credit checks of potential employees protect companies – particularly small businesses – from fraud. According to ACFE, the median loss suffered by organizations with fewer than 100 employees was $190,000 per incident, higher than median losses in large organizations. Overall, employee theft accounted for over $15 billion in losses annually, with companies losing a median of 5% of their annual revenue to employee fraud.

Consumers have significant protections when employers use credit reports during background checks as part of their hiring process, as the use of consumer reports in employment situations is tightly regulated:

• Prior to requesting a consumer credit report, an employer must grant to the prospective employee a written see stating the source of the in rank and how it will be used.
• The employer must also grant a copy of the consumer credit report to the consumer upon request, and prior to taking an adverse action.
• If an adverse employment action is taken against a prospective employee due to the in rank contained in a consumer credit report, the user must grant the name and contact in rank for the reporting agency to the consumer and clarify the reasons for the action.
• Under the FCRA, any person who willfully fails to comply is accountable to that consumer in an amount equal to the sum of (1) (A) any actual hurts sustained by the consumer as a result of the failure or hurts of not less than $100 and not extra than $1,000; or (2) such amount of in reprisal hurts as the court may allow; and (3) in the case of any successful action to enforce any liability under this section, the expenditure of the action together with reasonable attorney’s fees as single-minded by the court.
• Credit scores are not provided to employers for employment decisions. 

For extra in rank on credit reports, background checks, and employee theft and fraud, visit Employment Screening Resources (ESR) at http://www.esrcheck.com.

Sources:

http://www.acfe.com/occupational-fraud/occupational-fraud.asp

http://www.shrm.org/Research/SurveyFindings/Articles/Pages/BackgroundChecking.aspx

http://www.kstreetresearch.com/documents/050410Amendments/FEINSTEINAMENDMENTSA3795.pdf

http://www.govtrack.us/congress/bill.xpd?bill=h111-3149

http://www.govtrack.us/congress/bill.xpd?bill=s111-3217&tab=amendments

Sorry, the comment form is closed at this time.