If the Illinois State House of Representatives has its way, Illinois will join a small but growing number of states prohibiting employers from inquiring about or using an employee’s or applicant’s credit score in employment decisions. As employers increasingly rely on credit checks to manage workforces, they should be mindful of existing and emerging restrictions like the ones being considered in Illinois.

An increasing number of employers are conducting credit and background checks on candidates for employment. A recent survey by the Society for Human Resource Management found that of the employers asked, 60 percent said they run credit checks on at least some job applicants. That’s up from less than 43 percent in a similar 2006 survey.

Historically, employer credit checks had been subject to federal but not state regulation. Under the federal Fair Credit Reporting Act (“FCRA”), employers must make certain disclosures and must obtain authorization from applicants or employees before obtaining credit reports from consumer reporting agencies. Employers cannot refuse to hire a person who has fi led or intends to fi le for bankruptcy. Under the FCRA, however, an employee or applicant’s poor credit history can be used as a basis for an employment decision so long as the employee receives a copy of the credit report, the name of the agency providing the report, and an explanation of his or her rights under the FCRA.

With an unprecedented number of people looking for work (many with credit troubles), state legislators are concerned that employment discrimination based on credit history traps people who get into debt when they lose their job: if their fi nancial problems preclude them from being hired, then their continued unemployment aggravates their already troubled fi nancial situation. Thus, on March 25, 2010, the Illinois House passed H.B. 4658, known as the Employee Credit Privacy Act. As amended, the bill would prevent employers from inquiring about or using an employee’s or prospective employee’s credit history as a basis for hiring, recruitment, discharge, or compensation. Employers would also be prohibited from retaliating or discriminating against a person who opposes a violation of the Act or participates in the investigation of the violation. Excluded from the Act’s coverage would be fi nancial instructions, public safety agencies and government agencies that otherwise require use of the employee’s or applicant’s credit score. The bill is now being considered in the Illinois Senate.

According to the National Conference of State Legislatures, Illinois and New York are just two of at least 19 states across the country that are considering legislation to ban or limit credit checks on job applicants. Hawaii and Washington state have already adopted laws that ban credit checks on most job applicants. In March, the Oregon legislature sent its governor a bill that similarly restricted the practice, and comparable legislation has been introduced in New Jersey. Needless to say, the volume of legislative activity in this area should be a harbinger to those using such practices, and they should continue to pay attention to developments.

While Vedder Price will continue to monitor this evolving legislative landscape, employers may want to take the opportunity now to review their practices and ensure compliance with all federal and state requirements. Along with the above-discussed changes at the state level, federal legislation has also been proposed to ban employers from disqualifying job applicants based on their credit. In addition, the EEOC has recently undertaken an initiative reviewing whether policies or practices based on credit or criminal histories have an adverse impact on racial minorities. This initiative has resulted in increased litigation, including a recently fi led lawsuit against a nationwide convention services fi rm on the basis that it used credit reports to unfairly discriminate against black, Hispanic and male job applicants.

With its vast experience in counseling employers on background checks, Vedder Price is well equipped to assist any client with its use of credit histories or scores.