The Dos and Don’ts of Credit Checks

Posted Wednesday, July 19th, 2017 by Debbie Lamb, Sterling Talent Solutions

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Credit Reports are usually run when an individual is applying for credit or payment accounts, tenant or rental agreements or employment purposes. From the employment perspective, credit and financial health reports continue to be a controversial topic for human resource professionals, but they can be a valuable part of your screening program. In fact, they are often mandated for companies where candidates will have managerial, accounting, financial record or check-writing responsibilities. Sterling Talent Solutions recently hosted a webinar called the “Dos and Don’ts of Credit Checks” to offer an in-depth look at employment credit checks. Kristy Thompson, Director of Product Management and Joe Rotondo, Vice President of Compliance at Sterling Talent Solutions along with Tammy Long, Major Account Executive at TransUnion offered insight into the many aspects of employment credit checks.

What Is An Employment Credit Check?

An employment credit report is designed to give business’s pertinent information that is needed to assist an organization in making a hiring decision. The report will show a comprehensive credit history and provides public record information, plus other items that are not typically included on job applications. Employment credit checks can provide employers with an insight into a candidate’s sense of financial responsibility and stability. Credit checks are a useful tool for limiting the potential liability of fraud, theft and various white-collar crimes. Employment credit checks generally include the following identifying information:

  • Full Name
  • Address
  • Previous Names and Addresses
  • Debt
  • Bankruptcy
  • Payment History

The credit reports that a Consumer Reporting Agency provides gives a completely unbiased account of a potential job candidate’s background while staying compliant with the Fair Credit Reporting Act (FCRA). The employment credit check generally provides a current candidate address and previous addresses, can return employment information, suppresses personal identity information (Social Security Number, birth date and account numbers) and automatically generates and sends a public record notification letter as mandated by the FCRA requirements.

State and Municipal Laws that Affect Employment Credit Checks

When running a credit check, the employer must provide the candidate written notice that a credit report will be conducted and receive their consent. If the candidate requests a copy of the consumer report, it must be provided to them. According to the FCRA, if an adverse employment action is taken, a company must provide the name and contact information for the reporting agency to the consumer, suppress date of birth and account numbers, and explain the reasons for the action and provide a copy of the report.

A number of states and some major US cities have enacted laws regulating how credit reports are used for employment purposes. Most of these laws limit employers from obtaining consumer credit reports for employment purposes. Washington D.C. recently passed the Fair Credit in Employment Amendment Act, which prevents employers from requiring, requesting, suggesting or causing any applicant or employee to submit credit information and from using credit information of applicants or employees. The Act does not apply to federal jobs, police jobs, financial institution jobs with access to personal financial information or where otherwise required by D.C. law or pursuant to a lawfully issued subpoena.

When To Consider Running a Credit Check

When a business runs a credit check, they need to ask themselves the following questions:

  • Am I running the credit check out of business necessity?
  • Does the position involve handling cash or financial assets?
  • Is this a senior level position?
  • Is there state or city legislation to consider when running the credit check?

When running a credit check, the company must have a permissible purpose to run the check. The candidate MUST give permission to run the report via a disclosure authorization form. Companies should select the credit check vendor they want to use. Sterling Talent Solutions has had a long term partnership with TransUnion to run credit checks. Employers also need to be able to understand and interpret the results of the credit report for their specific purpose. It is very important to properly review each credit report in detail before making any adverse hiring decision. Each section of the credit report will offer distinctive information from public record notifications (such as bankruptcies) to an applicant’s credit summary detailing their credit responsibility.

It is critical to consult your legal team to better understand what existing or emerging limitations may be placed on your organization regarding running credit checks. To learn more details on how to interpret the findings on a credit report as well as a list of state credit reporting laws, download the OnDemand version of the Dos and Don’ts of Credit Checks webinar.

Please note: Sterling Talent Solutions is not a law firm. The material available in this publication is for informational purposes only and nothing contained in it should be construed as legal advice. We encourage you to consult with your legal counsel to obtain a legal opinion specific to your needs.

This publication is for informational purposes only and nothing contained in it should be construed as legal advice. We expressly disclaim any warranty or responsibility for damages arising out this information. We encourage you to consult with legal counsel regarding your specific needs. We do not undertake any duty to update previously posted materials.