January 6 Tip of the Week

“Fair Credit Reporting…”

Employers and human resources professionals are familiar with the federal Fair Credit Reporting Act which places restrictions on the use of employee background checks.  Under the federal law, employers must follow very specific steps and procedures when conducting background checks on new hires or employees when using a third party to gather that information (https://files.consumerfinance.gov/f/documents/bcfp_consumer-rights-summary_2018-09.pdf).  Employers who conduct background checks through a third-party consumer reporting agency must:  (1) notify the employee or new hire of the practice of obtaining a consumer credit report; (2) obtain the individual’s written permission to obtain the report; and (3) certify to the consumer reporting agency that the employer has both notified and obtained the written consent of the individual who is the subject of the report.  Once an employer has received the report, if information in the report will result in an adverse action against the subject of the report, the employer must notify the individual of the potential adverse action, provide them with specific notices, and give the individual the opportunity to review the report and determine if it is correct.  Here is a link to guidance for employers on the use of these reports:  https://www.ftc.gov/business-guidance/resources/using-consumer-reports-what-employers-need-know. 

While federal law regarding the use of consumer credit reports has been in place for some time, states and localities have also joined in the oversight of the use of consumer credit reports for hiring and employment decisions.  New York has recently joined ten other states in restricting the use of consumer credit reports and credit histories in employment decisions.  The ten other states and localities are:  California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington, as well as New York City; the District of Columbia; Chicago; Cook County, Illinois; Madison, Wisconsin; and Philadelphia, Pennsylvania.  The laws of these states and localities prohibit the use of a consumer credit report when making employment decisions generally.  Several exceptions do exist under these laws, which allow for the review of a consumer credit report for positions: in law enforcement, involving financial or managerial oversight, and where state or federal law mandates a credit check. New York’s statewide law goes into effect on April 18, 2026. 

Whenever new laws are passed across the country, they serve as a good reminder for employers to review their practices and processes to ensure that the employer is in compliance with all applicable state and federal laws.  Even though an employer may not be covered by New York law, the change in the law in New York should trigger a review of the law in the employer’s area to ensure that the employer is in full compliance with any existing or new laws that apply to their operations.  myHRcounsel can assist employers by keeping employers up to date on the changes in the law that affect them and in modifying and adjusting their practices to ensure compliance.