Your Rights Regarding Pre-employment Credit Checks

Nevada has just joined the ranks of 9 other states that have outlawed the use of credit history to discriminate against potential employees. However, they're still a minority. Still, there’s a clear trend in the states. According to the National Conference of State Legislators, “42 bills in 24 states and the District of Columbia have been introduced or are pending in the 2013 legislative session relating to the use the credit information in employment decisions. Out of the total 42 bills, 39 address restrictions on the use of credit information in employment decisions.”

In most states, pre-employment credit checks are legal. Employers argue that bad credit are an indication that the person may embezzle or be dishonest. I say nonsense. People with good credit embezzle all the time. People with bad credit may have just had a run of bad luck, a nasty divorce, uninsured medical bills, or some other unavoidable financial disaster. Being poor is not the same as being dishonest.

The recession brought this issue to a head. Suddenly 10% of the population was unemployed. People with stellar credit found themselves in trouble. While government tends not to pay attention to issues affecting the poor, when it hits the middle class, suddenly everyone cares.

There have been multiple attempts to address this situation in Congress. All have failed. In my opinion the current Congress won’t do anything until the problem starts to impact the upper class. We have a very anti-employee majority in office. The only way things will change is if voters speak up and tell their representatives to make employers butt out of their finances.

So, what do you do if you're in the unlucky majority of states that still allow this invasion of your privacy?

I suggest honesty. If you have bad credit, be ready to explain your situation. Tell the interviewer your plan to address the situation. While being “in over your head” may be considered an indicator of potential dishonesty, it doesn’t mean you’re going to become an embezzler. If you can demonstrate that you have a plan to get out from under the debt, the HR department might feel reassured.

What are your rights if an employer runs your credit history?

If your potential employer is going to run a credit check, then they must comply with the Fair Credit Reporting Act. This requirement covers anything the employer is getting from a consumer reporting agency that covers personal and credit characteristics, character, general reputation, or lifestyle, but not the HR department running your name on Google, checking out your Facebook page, or reading your blog.

If they are going to run a credit check, they have to give you a document solely for the purpose of telling you they intend to conduct a credit check. It was probably shoved in with a stack of papers they handed you with your application or pre-employment forms. They need your permission in writing.

They must also tell you if they’re about to deny a job, reassign, or terminate you because of what was disclosed in a credit report. They must give you written notice with a copy of your credit report and a document called "A Summary of Your Rights Under the Fair Credit Reporting Act.” This process does not apply to truckers.

Once the employer decides to use the report against you, they must then give another notice, this time telling you the name of the agency that did the credit report, saying the agency isn’t the one that made the adverse decision, and telling you how to dispute the information in the report with the agency. This notice can be verbal or in writing, unless you’re a trucker, in which case it must be written.

If an employer runs your credit history without permission, they’ve broken the law. If they don’t jump through all the hoops required under the Fair Credit Reporting Act, you have potential claims against them. In that case, contact an employment lawyer in your state to discuss your options.

The EEOC views the use of employment credit checks as potentially discriminatory against women and minorities. If you’ve been denied a job or had other adverse action taken against you by an employer based on bad credit, you might want to explore the possibility that you have a discrimination claim with an employee-side employment lawyer in your state..

Your Employer Can’t Discriminate Because of Your Bankruptcy (But Your Potential Employer Can)

The Bankruptcy Code says: “No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt . . . .” Seems pretty clear, huh? Ordinary mortals read the language “or discriminate with respect to employment against” to include discrimination in hiring.

The federal appellate courts, as we know, are not ordinary mortals. In a recent case, the 5^th Circuit Court of Appeals found that this provision did not apply to discrimination in hiring. The employer withdrew a job offer after the background check revealed that she had filed for bankruptcy.

The court said, “Had Congress wished to bar private employers from discriminating against debtors in their hiring decisions, it could have done so by adding the phrase ‘deny employment’ to [the law] when it amended [the law] in 1994 and again in 2005.”

The 5^th Circuit joined the 3^rd Circuit in this reasoning.

Why the tortured logic? Well, it’s at least partly Congress’s fault (isn’t it always?), because they put hiring in a provision about government employers:

“[A] governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated . . . .”

These two courts are assuming that Congress thinks like they do (they don’t) and they are failing to take into account that the two provisions weren’t passed at the same time. So sure, Congress could have included that language. But they’re ordinary mortals who assumed that the phrase “discriminate with respect to employment” meant what it says.

The 11^th Circuit has a similar case in front of it, and these cases are popping up all over now. If another circuit decides differently, then the Supreme Court will have to decide which interpretation wins out.

In my opinion, employers who refuse to hire people just because of bankruptcies are idiots. What on earth does that have to do with their skills? Why exclude an increasingly large number of potential candidates just because the economy tanked?

In the meantime, Congress should immediately act to fix the darned law so their constituents aren’t denied employment just because they filed bankruptcy. Support for the change should have nothing to do with party lines. It’s the right thing to do.