As of September 30, 1997, changes in the Fair Credit Reporting Act require employers to obtain an applicant's or employee's written consent before checking his or her credit history. The new law applies to all employment decisions, including hiring, promotion, discharge and demotion. The employer also must provide the applicant or employee a written statement in advance explaining that a credit check may be made. The disclosure must be made in a separate document and stated in plain language. In other words, it cannot be included as part of a larger employment application or reference check form and cannot read like a document written for a lawyer. Should an employer rely on the credit check to refuse employment or take any other adverse actions, the employer must provide the person a copy of his or her credit report and a new consumer credit rights disclosure form prepared by the FTC. That disclosure form explains that employees have the right to dispute the accuracy of credit information with the credit agency.
The new credit law does not restrict what employers can do. It only requires more paperwork to be processed. More specifically: The new law does not prevent the use of credit checks in making hiring and promotion decisions. Nor does it prevent an employer from refusing to hire an applicant who refuses to sign such a credit report release. Indeed, even if the credit report proves inaccurate, nothing in the new law says an employer must give an applicant or employee a chance to explain. The employer's only obligation is to disclose the fact of the credit check and if the report results in an adverse decision, its results. A word of caution, however; employers that do not comply with the new law can be sued for damages, a civil penalty of up to $ 1,000 and attorney's fees.