Previously, in another post, we had cautioned that the use of credit checks to assess applicants’ qualifications could be discriminatory.   Four states — Hawaii, Illinois, Oregon (pdf) and Washington (pdf) currently have laws on the books restricting the use of credit reports by employers.  We also recently advised that there was a federal bill pending in the House (H.R. 321), that would outlaw the use of such credit checks, except for financial institutions and for national security clearance. 

Although no further action has been taken on the House bill, several states are following the trend and have introduced legislation that would prohibit the use of credit checks.  Florida (SB 1562), Michigan (HB 4363) and Montana (HB 601) have recently introduced legislation that would limit employers’ ability to use credit reports when making any employment decisions.  These three pending bills are added to the 15 states where such bills are already pending, including California, Connecticut, Georgia, Indiana, Kentucky, Maryland, Missouri, Nebraska, New Jersey, New Mexico, New York, Ohio, Pennsylvania, Texas, and Vermont.

The three pending bills are not identical in their provisions but all severely limit an employer’s ability to use personal credit history in determining whether applicants should be hired.  Here are the highlights from the pending bills:

Florida:  Generally, would make it unlawful to use unless permitted by law.

• Exception is made where it can be shown credit history is directly related to position sought, presumably this would apply to financial institutions; but
• Even where permitted to request a report, cannot be the determining factor in deciding not to hire applicant

Michigan:  Very broadly would prohibit any employer use of credit report and would make it unlawful to request that an applicant give permission to obtain a credit report.  Exceptions would be made if "a good credit history is an established bona fide occupational requirement of the particular position or employment classification. Good credit history is presumed to be a bona fide job qualification for any of the following:

• An employee of a state or nationally chartered bank, bank holding company, or its affiliate or subsidiary.
• An employee of a state or federally chartered savings and loan, savings bank, or credit union or credit union affiliate or subsidiary.
• An employee of an individual or firm licensed to be a certified public accountant.
• An employee of a casino.
• An employee of an insurer if the employee works in fiduciary capacity and engaging in life insurance transactions or is required to be licensed under federal securities laws

Montana:  Employers who were using the report to make employment decisions would have to notify the employee that was the reason for the employment decision.  If the employee or applicant is in either of the following positions, then use would be permissible:

• Employee may be issued a line of credit (either in goods or dollars) for use during employment;
• a fiduciary responsibility is owed to the employer;
• a motor carrier employed regulated by the Secretary of Transportation regarding working hours; or
• requires national security clearance

Employers in states where these bills are pending should track the bills to insure compliance if passed.  Also, if passed in their present form, employers may still face discrimination claims even though they are using the report for one of the permissible purposes.