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New Restrictions on use of Consumer Credit Reports in Hiring

Spring 1997

Our Labor & Employment Practice Group would be happy to assist you with any questions relating to this article.

Faced with a desire to screen applicants before making the investment in training employees, employers increasingly are supplementing interviews with other screening mechanisms in the hiring process. Some employers are using personality profiles, psychological examinations, and even handwriting analysis to select the best applicant for an opening, notwithstanding issues concerning the utility and legality of some of these techniques. Many employers also seek credit reports concerning their applicants, believing that an individual's credit history may shed light on his/her sense of responsibility and likelihood for success.

New amendments to the federal Fair Credit Reporting Act place limitations on employers' use of consumer credit reports for employment purposes. Such reports contain data on the "creditworthiness" of the subject. Before obtaining a consumer report on an applicant, employers are required to disclose the procurement of such a report in "a clear and conspicuous" written disclosure form. This disclosure can be made any time before the report is procured. Moreover, the applicant must authorize the procurement of the report in writing in advance. If an employer elects to disqualify an applicant from consideration for employment based in whole or in part on a consumer report, the employer must provide a copy of the report and a written description of consumer rights under the federal Fair Credit Reporting Act before taking that action.

The Fair Credit Reporting Act also contains similar disclosure and consent requirements for the procurement and use of investigative consumer reports. This type of report provides information regarding the subject's character and reputation.

Employers who violate these requirements face potential claims for actual damages and attorney's fees. Accordingly, employers wishing to use credit or investigative consumer reports in screening employees should develop appropriate forms and checklists to ensure compliance with these new requirements.


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