3 legal problems in this common hiring practice

April 8, 2009 by
Filed under: Applicant background screening, In this week's e-newsletter, Latest News & Views, Online recruiting 

Checking a job candidate’s credit is a common part of the background screening process for some jobs. But as more people begin to suffer in that area, the practice is likely to come under greater legal scrutiny.

For companies that do use credit checks when hiring, here are some mistakes that can lead to expensive lawsuits:

  • Not getting authorization – The Fair Credit Reporting Act requires companies to get applicants’ consent before obtaining a credit report. Also, applicants must be notified when they’re rejected because of a credit report.
  • Ignoring a possible disparate impact – The EEOC has said legitimate screening practices can be discriminatory when they accidentally weed out members of a protected class. That means if, for example, most of applicants rejected by the credit check are minorities, the company might be sued even if the bias was unintentional.
  • Using it too much – One way to limit liability of using a credit check to screen job applicants: Only use it when you have to. Most employers just look at credit checks for financial jobs.

Beyond legal issues, some experts say companies should stop taking credit scores into account in the current economy. Bad credit is on the rise, which means many otherwise qualified candidates could be turned down because of situations outside their control.

Has your company ever used credit checks as part of the screening process? Why or why not?

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Comments

2 Comments on 3 legal problems in this common hiring practice

  1. Jesse Berger on Fri, 27th Mar 2009 3:56 pm

    2. We provide credit checks to employers, however, the credit bureaus do not allow consumer reporting agencies to provide “credit scores” for employment purposes. When using credit reports companies should look more closely at adverse information that is directly correlated to the job functions or competencies, not the score or record of the report. Adverse information that may be relative to a job, for example, would be liens or judments based on civil suits or criminal activity.

  2. T.C. on Wed, 15th Apr 2009 8:25 am

    3. We run them on all Corporate Loss Prevention candidates