Background

The Fair Credit Reporting Act (FCRA) provides confidentiality protections for consumer credit history. However, use of credit reports is permissible for employment purposes, so long as the applicant consents and is informed of any adverse results caused by his or her credit history.

Obtaining credit reports has become a relatively common practice for employers in recent years. These reports can provide employers with an indication of employee trustworthiness with cash, or general effectiveness for certain vocations. For instance, a bank may review applicant credit history to test the financial responsibility of workers handling client assets. Employers also run credit checks to guard against negligent hiring lawsuits.

Criticism

Agencies such as the EEOC have repeatedly challenged hiring procedures that use credit checks as having a disproportionate impact on racial minorities. Although facially neutral, credit checks may especially affect racial minorities by reflecting financial difficulties caused by other barriers to opportunity.

Given a showing of a procedure’s disproportionate impact on a particular race, Title VII of the Civil Rights Act requires employers to demonstrate the legitimacy and relevance of the procedure to the job in question. If the procedure is sufficiently job-related, it is permissible under Title VII.

The Law

On May 6, 2015, Mayor de Blasio signed a bill amending New York City’s Human Rights Law to ban employers, labor organizations and employment agencies from requesting or reviewing applicant credit history. The legislation covers credit scores and reports calculated by third-parties, as well as information provided directly by the applicant.

The Mayor cited concerns about the disproportionate effects of credit checks on low-income and racial minority applicants as a major factor behind the legislation. Skepticism toward the relevance and accuracy of credit reports also weighed in, as the law aims to ensure that employment decisions are based on merit, rather than the unrelated or uncontrollable contents of a credit report. These factors mirror those behind the recent “ban the box” legislation in cities such as Buffalo and Rochester, prohibiting employers from inquiring about criminal convictions on job applications.

Unlike “ban the box” laws, however, this legislation will not permit conditional job offers pending a credit check where relevant to job performance. Instead, it outlines specific duties and responsibilities that may allow credit checks for certain positions. Essentially, the law expressly determines what types of employment justify requiring a credit check, such as positions involving fiduciary responsibility over substantial employer assets or regular access to trade secrets.

Impact

The law will take effect on September 3, 2015. Its reach will extend to all employers, public and private, unless expressly stated otherwise under the exceptions.

Compliance will require a careful analysis of business functions and employee responsibilities to determine whether they fall under any of the law’s exceptions. If not, employers must review and revamp policies to ensure that unlawful credit checks are completely removed from all hiring procedures.