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Credit Screening and Your Hiring Process – Are Changes on the Horizon?

Do you check candidates’ credit as part of your screening process?  If so, you may want to read this.

Although no current legislation is in process in the state of Tennessee, the National Conference of State Legislature’s (NCSL) website indicates that changes in credit screening legislation are occurring from coast to coast.  Seven states now limit employers’ use of credit information in employment: California, Connecticut, Hawaii, Illinois, Maryland, Oregon and Washington.  To date, 58 bills in 28 states and the District of Columbia were introduced or pending in the 2011 legislative session.

Connecticut’s new credit screening law went into effect just a few days ago, on October 1, 2011.  Their law bars mandatory consent to credit checks by employees and applicants for all but a few types of employers.  Since then, California has also banned most employers from running credit checks on job applicants, and at least five more states are also considering similar bans.

Although the legislation varies in scope from state to state, most prohibit some or all employers from using credit reports in making hiring and employment decisions.  Major exceptions include:

  • financial institutions as defined under law;
  • credit reports required to be obtained by employers by law;
  • credit reports that are substantially related to an individual’s current or potential job, such as: those who make substantial financial decisions, law/peace officers, those who handle large sums of money as part of their jobs, etc.

To learn more about credit screening legislation in progress across the county, visit the NCLS website.

As an employer in Middle Tennessee, you still have the right to check a job candidate’s credit.  Before you do so, however, you should consider:

  • how relevant the information you’re collecting is to the available position;
  • the cost involved versus the benefit to be gained;
  • whether or not your internal staff is trained in how to interpret the complex information contained in today’s credit reports;
  • whether or not there may be potential adverse effects to checking an applicant’s credit.

While the use of credit checks as an employment screening tool has grown over the past several years (with some 60 percent of U.S. employers using credit reports for some or all of their background checks), this practice is now becoming illegal for many employers.  In the future, it will be interesting to see if and how this ban will help people with financial problems find employment.

What is your take on the new credit screening laws?  Will it affect the way you screen and hire candidates?  We at Wood Personnel would like to know.  Please leave your comments below.