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We just published The Verifier XXIV, Fall 2011 Edition, a publication intended as an educational tool and information resource for human resource professionals or anyone interested in keeping abreast of recent employment screening and background check industry developments.

Highlights of this issue include the following:


Announcements and Legislative Updates

Check it out!

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Thought I’d share a little background screening humor thanks to our friend Praj Patel at TalentTech.

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It’s official. The state of California becomes the seventh state to prohibit employers from using credit reports to make employment decisions. California Governor Jerry Brown signed AB 22 which will take effect on January 1, 2012. Like it’s counterparts in the states of Maryland, Oregon, Hawaii, Illinois, Washington and Connecticut there are some exceptions. Employers may consider a credit report under the following circumstances only if the candidate is informed that a report will be sought and they have obtained written permission:

  • A managerial position
  • A position in the state Department of Justice
  • A sworn peace officer or other law enforcement
  • A position for which the information contained in the report is required by law to be disclosed or obtained
  • A position that involves regular access to confidential information such as credit card account information, Social security number, or Date of birth
  • A position which the person can enter into financial transactions on behalf of the company
  • A position that involves access to confidential or proprietary information
  • A position that involves regular access to cash totaling ten thousand dollars ($10,000) or more of the employer, a customer, or client, during the workday

On a personal level, everyone saw this coming. Former Governor Arnold Schwarzenegger vetoed similar measures during his tenure on two occasions. And the rising tide of similar legislation in other states only bolstered the state assembly’s efforts to make this happen.

While I was once opposed to this type of legislation, I have slowly warmed to the concept. The truth is that employers that do not use credit reports for the exempted purposes probably shouldn’t have been using them to make hiring decisions in the first place.

Any employer that operates in the state of California and utilizes credit reports or might do so in the future should consider evaluating their employment screening policies.

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Jon Hyman of Ohio Employer’s Law Blog fame just posted about yet another embarrassing episode for the EEOC.  This time they were ordered to pay Cintas Corporation nearly $3 million dollars for overzealous legal tactics.  This on the heels of the PeopleMark ruling earlier this year which resulted in a $750,000 judgment against the agency.  Jon also recently wrote about another ruling that went against the EEOC in the Kaplan Higher Education case which deals with the use of an employer’s use credit reports as part of the background screening process.  And at the same time they are unfairly saddling these corporations with unfounded lawsuits, they are wasting time and tax payer money which affects us all.  See Jon’s complete post below.

A Michigan federal judge has slammed the EEOC for its “reckless sue first, ask questions later strategy.” After 11 years of litigation, the court awarded the EEOC’s target, Cintas Corporation, $2,638,443.93 in attorneys’ fees, costs, and expenses from the agency.

The court justified its astronomical award based on the EEOC’s failure to investigate before filing suit, and dilatory tactics before and after filing suit:

  • The EEOC did not investigate the specific allegations of any of the thirteen allegedly aggrieved persons until after the Serrano plaintiffs filed their initial complaint, and after it filed its own complaint years later.
  • The EEOC did not engage in any conciliation measures as required by § 706 prior to filing suit on behalf of the named Plaintiffs.
  • The EEOC did not identify any of the thirteen allegedly aggrieved persons as members of the “class” until after the EEOC filed its initial complaint.
  • The EEOC failed to make an individualized reasonable cause determination as to the specific allegations of any of the thirteen named plaintiffs in this action….

During the course of its involvement in this case, the EEOC filed, and lost, over a dozen motions. Furthermore, Cintas was forced to file a number of motions because of the EEOC’s failure to properly respond to Cintas’ discovery requests. Cintas succeeded on all of these motions, and the EEOC’s conduct served only to prolong this decade-long litigation…. In his March 2, 2010 Order Granting Motion to Compel, Magistrate Judge Scheer stated, “There appears to be no purpose for [the EEOC’s] position [to withhold the questionnaires] other than to increase the difficulty and expense of the defense of this action by Cintas.”

Employers, if you’ve ever been sued by the EEOC, you know it is never fun to be in its crosshairs. Unlike you, the agency does not pay lawyers to litigate for it, and has seemingly unlimited resources to make your lives a living hell. Take heart, though, that there are judges who will hold the EEOC’s feet to the litigation fire. As this case illustrates, it is possible to beat the EEOC at its own game. But, it’s going to take perseverance.

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We just published The Verifier XXIII, Summer 2011 Edition, a publication intended as an educational tool and information resource for human resource professionals or anyone interested in keeping abreast of recent employment screening and background check industry developments.

Highlights of this issue include the following:


Announcements and Legislative Updates

Check it out!

Continue Reading


Effective July 21, 2011, Fair Credit Reporting Act (“FCRA”) adverse-action and risk-based pricing notices must disclose any numerical credit score that contributed to the: (1) adverse action; or (2) extension of credit on terms materially less favorable than those available to a substantial portion of customers.

If you are hearing this for the first time, you aren’t alone.  And here’s why most of you shouldn’t care.

These rules only apply if you are evaluating a credit score.  Remember that employment credit reports (most commonly used on employment background checks) do not include a credit score.

Why are we bothering you with this useless information if it doesn’t affect you?  Well, to let you know if you hear about it, that it most likely doesn’t affect you. If you are reviewing credit scores, you might want to read the information below provided by Seyfarth Shaw labor and employment attorney, Pam Devata.

The FCRA requires a person taking adverse action based in whole or in part on a consumer report to provide an adverse-action notice. Section 1100F of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act) amended Section 615(a) of the FCRA to require users of credit scores to include those scores, and related information, in adverse-action notices provided to consumers. The requirement to disclose credit score information in FCRA adverse-action notices also applies to adverse-action decisions not related to credit.

Consequently, when a user takes any adverse action based in whole or in part on information contained in a consumer report, regardless of the weight of the credit score in the decision, the user must provide the consumer with the following:

*          The credit score;

*          The range of possible credit scores under the model used;

*          All of the key factors that adversely affected the credit score

(not to exceed four factors, unless one factor is the number of inquiries made with respect to the report, in which case the key factors may not exceed five);

*          The date on which the credit score was created; and

*          The name of the person or entity that provided the credit score.

New Risk-Based Pricing Notice Requirements:

Risk-based pricing refers to the practice of setting or adjusting the price and other terms of credit offered or extended to a particular consumer to reflect the risk of nonpayment by that consumer. The FCRA also requires a creditor to provide a risk-based pricing notice to a consumer when the creditor uses a consumer report in connection with a credit application or review of an existing account and, based on the report, grants credit or amends existing credit on terms that are materially less favorable than the most favorable terms obtained by a substantial portion of consumers. The Federal Reserve Board (the

“Board”) and the Federal Trade Commission (“FTC”) recently amended their respective risk-based pricing rules to require disclosure of credit scores and information relating to credit scores in risk-based pricing notices if a credit score of the consumer is used in setting or adjusting the material terms of credit.

The Board’s and the FTC’s rules require the same additional information to be included in a risk-based pricing notice as is required for the adverse-action notices.  In addition, the risk-based pricing notices must include a prescribed statement explaining credit scores that includes a disclosure that the credit score was used in setting the credit terms. For example, a statement such as:

*          “Your credit score is a number that reflects the information in

your credit report.  We used your credit score to set the terms of credit we are offering you.  Your credit score can change, depending on how your credit history changes.”

The Board’s and the FTC’s rules also recommend that the risk-based pricing notices contain optional contact information for the entity that provided the credit score.

Common Questions:

The new rules raise a lot of questions, many of which are addressed in the commentary to the rules, such as: (1) whether credit score disclosures are required when only the credit score of a guarantor, co-signer, surety, or endorser is used (no disclosure is required); (2) whether there are safe-harbor model notices that can be used (yes there are); and (3) what to do when dealing with proprietary scores, three-party financing transactions, more than one applicant, no credit score, and multiple credit scores (the commentary addresses these questions as well).

Two of the more common questions, however, concern “what is a credit score” and “when is a credit score used.”  The commentary makes clear that a score that is not used to predict creditworthiness, such as an insurance score, is not a “credit score” and need not be disclosed.  The commentary also makes clear that “use” occurs at a very low threshold and if the credit score played any role in the decision (for example, if the credit score led the user of the credit score to investigate further and the results of that investigation played a role in the decision), then the credit score was used and must be disclosed.

Many of these same questions can also be answered by reviewing the “Forty Years of Experience with the Fair Credit Reporting Act” report that the FTC issued today and is available at  This report is the most up-to-date FTC guidance on interpreting the FCRA.

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On July 13, 2011, Connecticut governor Daniel P. Malloy signed into law a bill which will prohibit most employers from evaluating a candidate’s credit report as part of the employment screening process.  The law is akin to a similarly a passed measure in the state of Maryland earlier this summer in that it carves out a number of exemptions and that it does not allow a private right of action.

According to labor and employment attorney Pam Devata of Seyfarth Shaw, “The Act also provides limited exceptions that allow employers to request or use credit information where a credit report is ‘substantially related to the employee’s current or potential job.’  This exception generally applies to those positions involving money-handling and other confidential job duties. For instance, employers may request credit information for employees in managerial positions that involve the direction and control of the business; employees who have access to financial information; employees with fiduciary duties to the employer; employees who have an expense account or corporate debit or credit card; employees with access to an employer’s nonfinancial assets valued at $2,005 or more (i.e., museum and library collections, prescription drugs, and other pharmaceuticals); and employees with access to confidential or proprietary business information. Notably, where an employer chooses to request credit information pursuant to the substantial purpose exception, it must disclose its intent to do so in writing to the employee or applicant.”

Violators will be subject to $300 fine per incident but will not face a private action from offended parties.

Connecticut now joins a growing list of states that have adopted similar measures including Oregon, Washington, Hawaii, Illinois, Maryland.

Employers note that this law will go into effect on October 1, 2011.

I know that mine might be an unpopular point of view in our industry, but I actually think that recently bills passed in Illinois, Maryland and Connecticut are effective models to curb the misuse of this background screening instrument.  While I believe that credit reports are an integral part of the screening process for some, it should not be a requirement for all positions.  Quite honestly, it is those that have been misusing these reports for positions where credit really shouldn’t be required that has caused the states to take these actions.  I feel like the exemptions that are carved out effectively allow those that should be conducting credit reports do so.  I also think that disallowing private action is fair to employers.

There, I’ve been holding that in for about a year. I feel better already.  Feel free to rip me and my position now.

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Stop me if you’ve heard this one before.  A man applies for a job as a manager at a deli.  He appears to be the ideal candidate and is asked to submit to an employment background check.  The man is told that his offer is contingent upon the successful completion of the check (although he argues that he was never informed of this).  He quits his current job only to find out that he has been rejected by the deli because a credit report revealed he had previously filed for bankruptcy.  The man sues the deli on grounds that an employer cannot make a hiring decision based on a bankruptcy.  He won, right?

Wrong.  Check out Myers v. TooJay’s, U.S. Court of Appeals for the 11th Circuit, No. 10-10774.

In a decision that affirms the U.S. 5th Circuit Court Ruling on Burnett v. Stewart Title, Inc. earlier this year, the court ruled that the prohibition of the use of bankruptcy records only applies to public employers (the government).

The comments I shared about the Burnett case apply here as well:

“I think it’s an interesting ruling to note since many employers I speak with think the government provisions apply to them in this regard.  Now remember, this isn’t an overall ringing endorsement by the court to run credit reports on all candidates or reject anyone who has filed for bankruptcy.  You still want to make sure that the information sought on a credit report has a clear nexus to the job responsibilities and that the adverse information would affect their ability to perform their responsibilities.”

HR.BLR broke down the case as follows and offered some insight and advice as well:

What the court said. The section of the Bankruptcy Code covering private employers was added to the earlier law. The prior section says that public employers may not refuse to hire someone with a bankruptcy filing. But the later section says that private employers may not terminate an employee who files for bankruptcy—and says nothing about refusing to hire such a person. So appellate judges again ruled in favor of Toojay’s and against Mitchell. Myers v. TooJay’s, U.S. Court of Appeals for the 11th Circuit, No. 10-10774 (5/17/11).

Point(s) to remember: The TooJay’s interviewer probably should have stressed that the job offer was pending the right background check results. But Starbucks has no such no-bankruptcies provision and hired Mitchell right back. Is such a policy really necessary?

P.S. I’ve been to Too Jay’s on many occasions and they make a mean Matzo Ball soup.

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California Assemblyman Tony Mendoza hopes that the third time is a charm for his efforts to ban the use of employment credit reports in the state.  Both of his previous efforts were actually passed into law before being vetoed by former governor Arnold Schwarzenegger. According to Mendoza, “A credit report is an unfair lens through which to view job applicants. Preventing someone from becoming gainfully employed due to a poor credit history is shameful,” says Mendoza. “This bill will simply remove an unnecessary barrier to employment for those seeking everyday work opportunities.”

At the time of the second veto, the governor was said, “This bill is similar to legislation I have vetoed for the last two years on the basis that California’s employers and businesses have inherent needs to obtain information about applicants for employment and existing law already provides protections for employees from improper use of credit reports. As with the last two bills, this measure would also significantly increase the exposure for potential litigation over the use of credit checks.  For these reasons, I am unable to sign this bill.”

The current bill, AB 22 makes the use of a credit report or credit history as a qualification of employment unless the following criteria is met:

(1) The information contained in the report is substantially job-related, meaning that the position of the person for whom the report is sought has access to money, other assets, or confidential information.

(2) The position of the person for whom the report is sought is any of the following: (A) A managerial position. (B) A position in the state Department of Justice. (C) That of a sworn peace officer or other law enforcement position. (D) A position for which the information contained in the report is required to be disclosed by law or to be obtained by the employer.

They define a managerial position as “a position held by a person who has authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of this authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”

So, at least there are exemptions here.  If passed, California would join Washington, Hawaii, Maryland, Illinois and Oregon as the only states with limitations on the use of credit reports as part of the background screening process.

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Ohio State Representative Alicia Reece, D-Cincinnatti has proposed a bill that would prohibits an employer from taking  adverse employment actions  based upon a consumer report or investigative consumer report if the report contains information concerning the person’s consumer creditworthiness, credit standing, or credit capacity.

And unlike similar recently adopted laws in Illinois and Maryland that are laden with exemptions, House Bill 131 exempts from the bill’s prohibition only if the position of employment is a supervisory, managerial, professional, or executive position at a financial institution.

When asked why the law was necessary, Representative Reece said, “House Bill 131 is needed because nearly 65 percent of employers now use credit checks during the hiring process.”

I respectfully suggest that the congresswoman revisit that statistic as she is most likely reacting to last year’s SHRM study which did indeed point out that 65% of all employers consider credit reports.  However, the same study found that only 13% evaluated credit on all employees.  And it is generally assumed that most of that 13% were either required to do so by state of national regulation.  She also might check out our most recent background screening market trends survey which pointed at that nearly 85% of respondents ranked credit reports as either not very or the least important factor in their hiring decision.

If passed, Ohio would join Hawaii, Illinois, Maryland, Washington and Oregon as the only states with prohibitions on employment credit reports.  As always, we would encourage employers that conduct background checks in Ohio to voice their concerns with their elected representatives.

We’ll keep a close eye on this proposed law and report back when we know more.

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