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Credit background screening: Avoid the pitfalls

Apr 09, 2013 Quinn Thomas

Conducting background checks presents several challenges to businesses. Often, companies aren't sure how to go about the process and are unaware what to look for. Because of this, some firms run into legal trouble when they don't properly conduct applicant screening.

One screening in particular that can be a minefield for employers is a credit history check. According to the National Conference of State Legislatures, there are currently 34 bills in 17 states that concern the use of credit information in the hiring process. Most of them are aimed at restricting access to consumer credit reports to employers. This shows that there is an ever-changing landscape in America regarding the validity of conducting a credit screening.

The Small Business Administration (SBA) warns business owners that due to the recent passing of the Fair Credit Reporting Act (FCRA), all businesses must get written consent from applicants before conducting consumer credit reports. In the event that any information obtained in this screening leads to the employer not hiring the applicant, that employer must provide the applicant with a copy of the report. Also, the business owner must inform that individual of his or her right to challenge the report as the FCRA allows.

Although the SBA indicates that 60 percent of businesses conduct credit checks, the numbers may start to dwindle as employee privacy concerns are tabled in Washington.

Tips from an expert
Richard Alaniz, a lawyer who specializes in national labor law, says that obtaining consumer credit data on prospective employees is always a good idea, especially if a person is applying for a position to oversee money or goods. However, Alaniz indicates that the various state and federal laws that are constantly passed make credit screening a tricky task. Still, there are many things employers can do to make sure they navigate the screening field without running into a legal iceberg.

Alaniz contends that the easiest way to avoid litigation is to stay up-to-date regarding laws. With new laws regarding applicants rights always being drafted, it's important to pay attention to what state and federal entities are doing. Having outside legal departments work with in-house HR teams is a good strategy to promote knowledge of new employee rights laws.

Being consistent by drafting particular documents pertaining to certain checks is encouraged as well. This way, once a business owner gets screening correct, he or she can apply it to all future job applicants. Just make sure they are updated to adhere to FCRA standards.