Recently, there have been increased enforcement actions, scrutiny and lawsuits brought by the Equal Employment Opportunity Commission (EEOC) challenging the use of credit and criminal history background checks. In addition, there has been an increase in lawsuits surrounding the Fair Credit Reporting Act (FCRA), including costly challenges related to obtaining proper consent to conduct such checks. There have also been "ban the box" initiatives at the state level that restrict whether an employer can ask about prior convictions. And, some states and municipalities even restrict an employer's use of credit reports. With so many rules and regulations, in addition to recent changes to the FCRA, here is some guidance on how to interpret it all. 

The FCRA requires employers and consumer reporting agencies to provide additional information and disclosures to job applicants and employees prior to obtaining a consumer report, which includes credit reports and background checks, for employment purposes. Employers are also required to provide additional disclosures to applicants and employees both before and after taking any adverse action based, in whole or in part, on the information contained in this report. The FCRA further requires that five business days before taking such action, an individual must be provided: (1) a copy of the consumer report; and (2) the Summary of Rights form. 

In July 2012, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, which transferred rulemaking authority for the FCRA to the Consumer Financial Protection Bureau (CFPB). Those subject to the FCRA should have received updated forms this January. 

In addition to being aware of FCRA compliance, the EEOC issued its updated enforcement guidance detailing how Title VII of the Civil Rights Act of 1964 (Title VII) restricts an employer's discretion to consider criminal records relative to employment decisions in April 2012. 

Despite not issuing formal guidance on credit checks, the EEOC has taken the position that credit checks or other questions about a job applicant's financial history should be avoided. The only time such checks may be acceptable is when the information is necessary to a particular job. The EEOC's rationale for this aggressive stance stems from its belief that such checks may disproportionately discriminate against minorities and other groups protected from employment discrimination in their search for jobs. 

Bottom line: employers, if using either criminal background or credit history checks, must ensure the procedures are consistent across the board, the checks are job-related, and that they receive written consent prior to running these checks. Make sure that an individualized assessment occurs before taking any adverse action. If an adverse action stems from a credit check, also make sure to comply with the written disclosure notices required under the FCRA.

This article appeared on June 25, 2013 on Crain’s Cleveland Business Blog.