Effective Jan. 1, 2011, it will be an unlawful employment practice, except under limited circumstances, for an Illinois employer to use an applicant’s or employee’s credit history in making employment-related decisions.

The Employee Credit Privacy Act, which was recently signed into law by Illinois Governor Pat Quinn, forbids an employer (with some exceptions) from using an individual’s credit history or credit report in decisions relating to recruitment, hiring, compensation, discharge or a “term, condition, or privilege of employment.” Under the law, an employer is also prohibited from inquiring about an applicant’s or employee’s credit history or obtaining a credit report from a consumer reporting agency. The law does not affect, however, an employer’s ability to conduct a thorough background investigation that does not contain a credit history or report, as permitted under the Fair Credit Reporting Act.

The new law provides several exceptions to the prohibition. Specifically, the law does not apply to the following: banks, savings and loans and certain other financial institutions, companies authorized to engage in insurance or surety business, State law enforcement or investigative units, State or local government agencies which otherwise require use of the employee’s or applicant’s credit history or credit report, and entities that are defined as debt collectors under federal or State statutes.

The prohibition also does not apply if “a satisfactory credit history is an established bona fide occupational requirement of a particular position or a particular group of an employer’s employees.” To establish a bona fide occupational requirement, the law requires at least one of the following circumstances to be present:

  • a State or federal law requiring bonding or other security covering an individual holding the position;
  • custody of or unsupervised access to cash or marketable assets valued at $2,500 or more;
  • signatory power over business assets of $100 or more per transaction;
  • a managerial position which involves setting the direction or control of the business;
  • access to personal or confidential information, financial information, trade secrets or State or national security information;
  • the position meets criteria in the administrative rules (if any) that the U.S. Department of Labor or the Illinois Department of Labor has promulgated to establish the circumstances in which a credit history is a bona fide occupational requirements; or
  • an applicant’s or employee’s credit history is otherwise required by or exempt under federal or State law.

The Act also prohibits retaliation or discrimination against an individual for filing a complaint, assisting or participating in an investigation or action involving a violation of the Act, or for opposing a violation. Employers who violate the new law can be subject to civil liability for damages and/or injunctive relief. Employees who prevail may also recover costs and reasonable attorneys’ fees.

Hawaii, Washington and Oregon have enacted similar laws. In light of the new law in Illinois, affected employers should consult with counsel to determine whether they fit into one of the statute’s exceptions, and if not, develop alternatives to current practices prior to Jan. 1, 2011 to avoid civil liability. If an employer currently uses a third party agent to perform such credit checks, that employer might also consider modifying their contract/relationship with the agent or may require their agent to confirm compliance with the new law.