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Take care how you screen candidates

Many banks use credit checks as a screening tool in hiring or promotion, based on the reasonable belief that employees responsible for handling other people’s money should be able to demonstrate they are competent at handling their own. However, a backlash against the use of credit reports in employment is emerging from Congress, federal agencies, and state legislatures.
Why opposition is growing
The argument against using credit checks in employment is threefold:

• First, studies show that minority populations and women have worse credit records than whites and males, so the use of credit checks may have a disparate impact on these groups.

• Second, there is concern that in an economy with high unemployment many excellent candidates may have their employment opportunities curtailed because of a credit record that does not accurately reflect their qualifications to handle money.

• Finally, there is the possibility that identity theft resulting in an inaccurate report may wrongly exclude candidates.

Opponents of restricting employment-related use of credit report restrictions point to the fact that the Fair Credit Reporting Act (FCRA) already includes extensive protections against the misuse of credit information in this regard.

Current state of play
On the legislative front, four states (Hawaii, Illinois, Oregon, and Washington) already limit the use of credit checks in hiring; 17 other states are considering limits. A bill to limit the use of credit checks as a basis for an adverse employment decision, first introduced in the last Congress, has been reintroduced in the current session. It’s too early to predict whether this bill will make it into law.

But this isn’t the only arena to watch.

The absence of federal law restricting the use of credit checks has not restrained the Equal Employment Opportunity Commission from filing a class-action lawsuit against Kaplan Higher Education Corp.. alleging that Kaplan discriminated against black applicants rejected because of their poor credit history.

And an earlier EEOC suit against a Dallas company alleged a pattern of discrimination against black, Hispanic, and women applicants rejected for the same reason. Both cases are pending.

What to do
Because of this trend, and because FCRA already imposes complicated restrictions on the process of obtaining and relying on a credit report from a consumer reporting agency, I recommend that you use credit checks sparingly and deliberately. Some specifics:

1. Need to know basis.
Decide which positions really require you to know the candidate’s credit history, for example, where needed for FDIC clearance, or if the position carries significant responsibility, such as branch manager or loan officer.

2. Restrict usage to definite candidates. Seek a credit record only at the final stage, after a conditional offer has been extended to a candidate. This way, you will save the cost of multiple record searches, and reduce the risk of a discriminatory impact finding.

3. Don’t wing it—set the rules. Develop a policy that defines what a “bad” credit record is, and describes a procedure (compliant with FCRA) that allows a candidate time to contact the consumer reporting agency to correct an inaccurate record, or just to sit down and discuss the reasons for the poor record with you.

You can’t look at credit in a vacuum. Many personal bankruptcies are the result of catastrophic healthcare costs; a divorce can destroy a credit record without really revealing whether the candidate is a bad employment risk. As in all HR policies, the policy should be written in clear language, implemented consistently, and documented accurately each time it is applied.

You can’t touch me
While we’re talking about bankruptcy, remember that employees who file for bankruptcy are protected under federal law: you can’t fire them for filing, or even, according to a recent court opinion, for thinking about doing so.

If the bank is a creditor, it can pursue the legal remedies available, but termination of employment isn’t one of them.

Garnishment of wages is a state law issue and procedures differ from state to state, but most states prohibit firing an employee whose wages have been garnished by a creditor, at least the first couple of times.

By the way, be careful to respond appropriately and in a timely fashion to garnishment orders, or the bank may end up paying the employee’s debt.

Criminal record checks
Banks have special responsibilities with regard to checking an applicant’s criminal history. Section 19 of the Federal Deposit Insurance Act prohibits the employment of individuals who have committed crimes of “financial malfeasance”—theft, embezzlement, etc.

This prohibition also includes consultants working for the bank as independent contractors. In addition, mortgage loan originators employed by the bank now must register under the SAFE Act, and are required to make a full disclosure of any criminal history on Form MU4R. For more information on this new regulation, review this.

Except in Hawaii and Massachusetts, where such inquiry is prohibited, you should ask on the application whether the applicant has been convicted of a crime, stating that a criminal record is not an automatic bar to employment. Regardless of the answer, you should check the official list of individuals barred from employment because of crimes of financial malfeasance. Access this list from the Federal Financial Institutions Examination Council’s enforcement page.

Then, at the point of making a conditional offer, do a criminal record check. FBI’s fingerprint database is the most comprehensive and accurate source for criminal history information. The ABA has a service that can link you in. (Learn more)

A personal view here: I think honesty is an essential requirement of every job in banking or elsewhere. If you find the person receiving a job offer has lied on the application about having a criminal record, think seriously about whether you want this person in the bank’s employment, regardless of whether their crime was one of financial malfeasance.

The best predictor
The best predictor of how an individual will perform is how they performed in prior jobs. Unfortunately, it is difficult to get former employers to open up about an ex-employee’s record.

Your bank probably has a policy of not giving out information beyond name, position held, and dates of employment. The fear is that a lawsuit will be filed by the former employee alleging defamation or discrimination. While this risk is probably slight, the rule of not giving a detailed reference is so entrenched that it is hard to get past it.

Here are some questions that might get an answer:

• Is the candidate eligible for rehire?

• Was termination voluntary or involuntary?

The answers may raise a red flag that necessitates a frank discussion with the applicant. Also, always double-check dates of employment given on the application or resume with the former employer: this is where most resume fraud occurs.

And remember my basic premise: Honesty is an essential requirement of every job. If what you discover from any source—credit report, criminal record check, or prior employment references—does not jibe with the information given by the applicant, it warrants the question: Is this individual lying? If they are, do you want to hire them, no matter how good their credit record is?
Marian Exall

Marian Exall ( is an employment lawyer and HR professional with more than 25 years' experience advising banks and other employers on compliance issues. She is a principal and co-founder of Employment Law Compliance, Inc. which provides HR compliance solutions to banks exclusively through the American Bankers Association. She is a frequent speaker and writer on human resources compliance in the banking industry, on association briefings and webinars, and at national and state bankers' association conferences. For more information on this or other employment compliance topics, please call Employment Law Compliance at 866-801-6302 or go to

Marian also writes fiction. Her latest novel is a mystery called A Slippery Slope. For more information and to order, go to

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