The California legislature recently passed a bill prohibiting employers – with some specific exceptions – from obtaining and using credit reports to screen candidates and employees. Check out this report at Law360. California becomes not the first, but the sixth state to have passed similar legislation, joining Hawaii, Washington, Oregon, Illinois and Maryland. Even more states are considering similar restrictions, and there’s even a proposal before Congress that would do the same thing on a national level. What else? Oh, the EEOC takes the position that the use of credit reports may be biased against minorities and females. Here’s the EEOC’s official take. So, not only may using these reports be unlawful in many states, but you could also face charges of discrimination over the use of credit reports. Finally, don’t forget that the bankruptcy code, which applies nationwide, prohibits an employer from discriminating against an employee on the basis of bankruptcy – basically, you can’t fire someone solely because of a bankruptcy, whether your business is a financial institution or not.

What’s an HR professional to do? Well, if your business fits within one of the exceptions to these credit check laws, it makes sense to continue using credit reports in the hiring process. Those exceptions are if your business is a financial institution, or is required to pull credit reports by law. Another exception is very vague in a lawsuit-inviting kind of way: if the job requirements relate to an employee or candidate’s creditworthiness, there’s an argument that running a credit report would be acceptable under these laws. With this exception, if there’s a pretty clear relationship – where the employee does the books for the entire organization, for example – it might still make sense. Think of it like this – my business is not a financial institution, but this person does things for our organization that are similar to what a financial institution’s employee does, such as control money. If the relationship is more tenuous, you should think carefully before pulling a credit report.

What should you do if your business doesn’t fall into one of those exceptions? Make sure you know what your state’s law allows, and make sure you know if and when the law has changed. If you’re in a state that prohibits screening with credit reports, and you don’t fall within an exception – just don’t do it.
If you fall within an exception – be careful, and also remember to follow the requirements of state law and the Fair Credit Reporting Act (FCRA) in obtaining the credit report and in making any employment decision based on information in the report.

If you are in a state without such a law – at least for the time being – proceed with caution, and mind the requirements of the FCRA.