When conducting employment background checks that include credit reports, employers must navigate a complex web of federal and state laws. While the Fair Credit Reporting Act (FCRA) sets a federal standard, a growing number of states and local jurisdictions have enacted stricter regulations that limit or prohibit the use of credit information for employment decisions.
Below is a comprehensive guide to state-specific restrictions, effective dates, and key exceptions.
California
Effective Date: January 1, 2012
California generally prohibits the use of consumer credit reports for employment decisions unless the position falls into specific exempted categories. Unlike many other states, California requires that the consumer be informed on the authorization form that a report is being sought for a specific position.
Key Exceptions (Position must meet one of the following):
- Managerial Position: Must manage the business/department, direct the work of at least two people, have hiring/firing authority, and earn a monthly salary roughly equivalent to twice the state minimum wage for full-time employees.
- Financial & Asset Access: Positions with regular access to bank/credit card information, SSNs, or cash of $10,000 or more.
- Law Enforcement: Employees of the CA Dept of Justice or police officers.
- Fiduciary Responsibility: Positions with signatory authority on bank cards/accounts or authority to transfer funds/enter financial contracts.
- Trade Secrets: Positions with access to confidential proprietary information.
Colorado
Effective Date: July 1, 2013
Consumer credit information may only be used if it is "substantially related" to the employee's current or potential job, required by law, or if the employer is a bank/financial institution.
Key Exceptions:
- Executive or management personnel and their professional staff.
- Positions involving fiduciary duties, issuing payments, collecting debts, or entering contracts.
Connecticut
Effective Date: October 1, 2011
Employers may only request a credit report if it is substantially related to the current or potential job.
Key Exceptions:
- Financial institutions and entities registered with the SEC.
- Mortgage brokers, lenders, or servicers.
Delaware
Effective Date: May 8, 2014
Applies primarily to government contractors and public employers. Credit reports cannot be considered until after a first interview and a conditional job offer have been made.
Key Exceptions:
- State, county, or municipal police and the Department of Corrections.
District of Columbia
Effective Date: March 17, 2017
DC employers are restricted from considering credit reports in employment decisions unless required by law.
Key Exceptions:
- Police, financial institutions, and the Office of the Chief Financial Officer.
- Positions requiring a security clearance or disclosures to the Board of Ethics and Accountability.
Hawaii
Employers may only order a credit report after a conditional offer of employment has been made.
Key Exceptions:
- Managerial or supervisory employees who use independent judgment.
- Federally insured financial institutions.
Illinois
Effective Date: January 1, 2011
Employers are prohibited from inquiring about credit history unless the employer or position is specifically excluded.
Key Exceptions:
- Positions involving custody of cash/assets exceeding $2,500.
- Signatory power over business assets of $100 or more.
- Managerial positions directing a business.
- Access to trade secrets or state/national security information.
Maryland
Effective Date: October 2011
Employers generally may not use credit reports to deny employment or determine compensation.
Key Exceptions:
- Insured financial institutions and entities registered with the SEC.
- Positions where a credit check is required by federal or state law.
- "Bona fide purposes" that are substantially job-related (must be disclosed in writing).
Massachusetts
Recent Legislation March 2024
Recent legislation aims to stop employers from using true credit reports for employment purposes, making it one of the most restrictive states. While this limits credit checks, other background checks (criminal, education) remain permitted.
Nevada
Effective Date: October 1, 2013
Employers cannot refuse to hire or take adverse action based on credit reports unless the information is reasonably related to the position.
Key Exceptions:
- Jobs entailing the care of money, financial accounts, or corporate credit cards.
- Licensed gaming establishments.
- Law enforcement with direct authority.
New York
Effective Date: September 3, 2015
The Stop Credit Discrimination in Employment Act (SCDEA) makes it an unlawful discriminatory practice to request or use consumer credit history for employment decisions.
Key Exceptions:
- Police and peace officers.
- Positions subject to specific security clearance requirements.
Oregon
Effective Date: 2014
Use of credit reports is prohibited unless "substantially job-related."
Key Exceptions:
- Federally insured financial institutions.
- Public safety offices.
- Positions where credit history is a valid predictor of performance (must be disclosed).
Puerto Rico
Effective Date: October 8, 2019
Act No. 150 precludes employers from verifying credit history for current or prospective employees.
Key Exceptions:
- Management positions.
- Positions in the Dept. of Justice or Judiciary.
- Roles with access to trade secrets or cash/goods worth $10,000+.
Rhode Island
Employers must explicitly advise the consumer that a credit report has been ordered.
Vermont
Vermont law severely restricts the use of credit information, broadly defining it to include both credit history and reports.
Key Exceptions:
- Law enforcement and emergency medical personnel.
- Financial institutions and credit unions.
- Positions requiring access to confidential financial information.
Washington
Employers may not request a credit report unless the reason is substantially job-related and disclosed in writing.
Key Exceptions:
- When required by law.
Local Jurisdictions with Restrictions
In addition to state laws, major cities have enacted their own ordinances regulating employment credit checks. Employers in these areas should be aware of local compliance standards:
- Chicago, Illinois
- New York City, New York
- Philadelphia, Pennsylvania
Disclaimer: The information provided above is for educational purposes only and is based on current industry knowledge. It should not be construed as legal advice. Employers are encouraged to consult legal counsel regarding specific compliance requirements in their jurisdiction.
The information and opinions expressed are for educational purposes only and are based
on current practice, industry related knowledge and business expertise. The information
provided shall not be construed as legal advice, express or implied.
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please contact Verified First Client Services for assistance.
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