Employment Credit Checks - The Rights of the Employee
The federal statute that deals with credit checks in the employment context is the Fair Credit Reporting Act ("FCRA"). In order to be covered by the FCRA, the credit report in question must be prepared by a consumer reporting agency ("CRA") -- a business that assembles such reports for other businesses.
Under the FCRA, anyone with a "legitimate business need" may access your credit report. Employers are deemed to have a "legitimate business need" to see an applicant's or employee's credit report as long as the employer uses this report to evaluate the applicant for hire and to evaluate a current employee for promotion, retention, or reassignment.
Although employers have the right to make employment decisions based on a credit report, the FCRA regulates the way in which they may make those decisions. First, the FCRA requires that an employer first obtain the applicant's or employee's written consent before performing a credit check. An employer must first inform the employee or applicant that someone will be conducting a credit check and get that employee's permission in writing (except for the trucking industry, in which case permission might not be required).
Second, before an employer may take an adverse action against an employee or applicant based solely on a credit check, the employer must give him/her a "pre-adverse action disclosure" that consists of a copy of the credit report and a written summary of his/her rights under the FCRA.
Third, after an employer has taken an adverse action against an employee or applicant, the employer must then provide him/her with an "adverse action notice." This notice must contain the name, address, and phone number of the CRA that supplied the report, a statement that the CRA that supplied the report did not make the decision to take the adverse action, and a statement notifying the individual of his/her right to dispute the accuracy or completeness of any information the agency furnished, and his/her right to an additional free consumer report from the agency upon request within 60 days.
There are legal consequences for employers who fail to get an applicant's permission before requesting a consumer report or who fail to provide pre-adverse action disclosures and adverse action notices to unsuccessful job applicants. The FCRA allows individuals to sue employers for damages in federal court. A person who successfully sues is entitled to recover court costs and reasonable legal fees. The law also allows individuals to seek punitive damages for deliberate violations.
Lastly, under Section 525(b) of the Bankruptcy Reform Act of 1978, it is unlawful for an employer to take an adverse employment action against an employee solely because that employee's credit check revealed that he/she had previously declared bankruptcy.
