New Trends in Background Checking and Screening

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Using background checks as one step of the screening process before hiring certain employees has long been considered a prudent hiring practice by nonprofits. For instance, reviewing criminal records, motor vehicle records, and education records is common, and rarely questioned. But an increasing number of states and municipalities are moving to limit employers from using credit reports in the screening process. Why?

First, it’s important to understand that there is a distinction between an “employment credit report” (that doesn’t reveal personal credit scores) and reports that focus on personal credit history. Employment credit reports do not include bank or credit account numbers, do not reveal an individual's credit score or the candidate’s date of birth, and do not have any negative impact on the credit score of the candidate who is being screened. Instead they typically include only information that allows the employer to scrutinize past negative conduct by a candidate that potentially would disqualify him or her from consideration as a new employee in a particular position.*

So, it is still possible and prudent to use employment credit reports that reveal less personal information than traditional credit reports. The argument against using credit history reports is that denying a candidate employment should not be based on the fact that the candidate was unemployed for a period of time, or has a spotty credit history. As pointed out in a recent Washington Post column, “How does the fact that you once couldn’t pay your credit card bill correlate to job performance? ... [A] bad credit record can be the result of a host of problems not linked to irresponsible financial behavior.” A new law effective September 3, 2015, in New York City is an example of a trend to move away from using credit history checks in the employment screening process. This trend is led by consumer advocates who hope that limiting the use of credit histories during the hiring process will prevent employers from refusing to hire individuals who have been unemployed, homeless, or simply have “bad” credit.

Currently, eleven states limit employers' use of credit information for employment purposes: California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. So far during 2015 legislative sessions seventeen additional states have considered legislation to restrict the use of credit information in the context of employment screening. Additionally, several localities have enacted specific legislation limiting the use of credit information, including New York City; Madison, WI; Cook County, IL, and Chicago, Illinois.

The majority of these proposed laws do not eliminate the ability of organizations to conduct credit histories altogether; instead they place strict limits on how employers use the information, and in connection with which jobs.

It does not appear that the goal of these new laws is to eliminate of the use of employment credit histories altogether, but to make sure that information resulting from screening is being used in a thoughtful, responsible, and non-discriminatory way.

Regardless of which side of the fence you are on, pro or con, every nonprofit conducting background screening on its prospective employees should take care to understand where, and when, it is legal and appropriate to use employment credit histories as a part of the hiring process. Using qualified background screening firms to guide your nonprofit through the screening process offers the assurance that your nonprofit’s actions to attract and retain qualified employees will not violate federal, state, or local laws.

The author, Art Ferreira, is founder and CEO of Coeus Global, a national background screening and risk management firm that provides background checking and screening services to charitable nonprofits nationwide, working with the National Council of Nonprofits through its member state associations of nonprofits. 

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