April 16, 2010

 According to the Federal Trade Commission Web site, “As an employer, you may use consumer reports when you hire new employees and when you evaluate employees for promotion, reassignment and retention—as long as you comply with the Fair Credit Reporting Act.

“Amendments to the FCRA—which went into effect Sept. 30, 1997—significantly increase the legal obligations of employers who use consumer reports. Congress expanded employer responsibilities because of concern that inaccurate or incomplete consumer reports could cause applicants to be denied jobs or cause employees to be denied promotions unjustly. The amendments ensure (1) that individuals are aware that consumer reports may be used for employment purposes and agree to such use, and (2) that individuals are notified promptly if information in a consumer report may result in a negative employment decision.”

The first requirement is easily met by having job applicants sign a form allowing the credit union to pull their credit report.

The second requirement is a bit more complicated. There are two steps you have to take:

1. Before you take adverse hiring action, you must give the individual a pre-adverse action disclosure that includes a copy of the individual's consumer report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act," which you’ll get from the consumer reporting agency.

2. After you've taken an adverse action, you must notify the individual—orally, in writing or electronically. The notice should include:

• the name, address and phone number of the consumer reporting agency that supplied the report;

• a statement that the consumer reporting agency did not make the decision to take the adverse action and cannot give specific reasons for it; and

• a notice of the individual's right to dispute the accuracy or completeness of any information the agency furnished, and his or her right to an additional free consumer report from the agency upon request within 60 days.

(Source: FTC’s “Using Consumer Reports: What Employers Need to Know,”)

According to a Society for Human Resource Management poll, just 13 percent of polled companies conduct a credit background check for all job candidates, while 47 percent do for selected candidates. Forty percent of polled companies do not conduct credit checks for any job candidates.

New laws could make it more difficult for employers to use credit reports in the hiring decision. Two states, Hawaii and Washington, already have laws that prevent employers from using credit reports when hiring for most positions. And more states are following suit. Similar legislation is pending in at least 16 states, including Wisconsin, Maryland, South Carolina and Oregon. In addition, Rep. Steve Cohen, a Democrat from Tennessee, introduced a similar bill last summer in Congress. But so far it hasn’t made it out of committee.

Opponents of the practice say it traps people in debt because their past financial problems prevent them from getting a job.

The laws in Hawaii and Washington, as well as most of the proposed state laws, include exceptions for cases where a credit check would be relevant to the job, such as at a financial institution. The proposed national bill―HR 3149, the Equal Employment for All Act―makes exceptions for employment “in a supervisory, managerial, professional, or executive position at a financial institution.” However, it is unclear how the bill, if it becomes law, would affect a credit union’s ability to pull a credit report for all hires, including tellers. For now, follow the bill’s progress at http://tinythom.as/hr3149/gt.

Theresa Witham is a CUES editor.