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1. ARTICLE: THE LEGALITY OF PRE-EMPLOYMENT CREDIT CHECKS: A PROPOSED MODEL STATUTE

TO REMEDY AN INEQUITY, 20 Va. J. Soc. Pol'y & L. 159

Client/Matter: -None-

ARTICLE: THE LEGALITY OF PRE-EMPLOYMENT CREDIT CHECKS: A PROPOSED MODEL STATUTE TO REMEDY AN INEQUITY

Fall, 2012

Reporter 20 Va. J. Soc. Pol'y & L. 159 *

Length: 27216 words

Author: Beverley Earle*, Gerald Madek** and David Missirian***

* Gregory H. Adamian Professor of Law and Chair, Department of Law, Taxation and Financial Planning, Bentley University and McCallum Graduate School of Business; B.A., University of Pennsylvania; J.D., Boston University School of Law.

** Professor, Department of Law, Taxation and Financial Planning, Bentley University and McCallum Graduate School of Business; B.A. and M.A., Boston College; J.D., Suffolk University Law School; LL.M., Boston University School of Law.

*** Senior Lecturer, Department of Law, Taxation and Financial Planning, Bentley University and McCallum Graduate School of Business; B.A., Brandeis University; J.D., University of Tulsa. Special thanks to Jonathan J. Darrow, Senior Research Consultant, Bentley University, and to Bentley University for research support.

Highlight

Abstract

Does having bad credit mean that you will perform poorly as an employee? Does it mean you are more likely to engage in illegal conduct on the job? Is this true whether you are a controller for a small, privately-held business, an employee with a company travel card with a $ 5000 limit or a purchasing card with a $ 1000 limit, or a janitor who enters the offices at night to clean but has no company credit cards? Should employers be free to use discretion in deciding what information they need to assure they are not making a negligent hire? Nine states have passed legislation to attempt to deal with this issue and twenty-six states are considering proposed legislation. Allowing credit checks, even for low-level jobs, appears punitive and possibly discriminatory on the basis of race, especially in the post-recession climate of 2012. Many people are facing an economic crisis - they have terrible credit, underwater mortgages, and significant medical debt, which could be compounded if they are unable to find work because of credit checks. This Article will review statutes and case law, propose a model statute, and discuss the policy implications for business and society.

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[*160]

Introduction

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Does having bad credit necessarily indicate that an individual will be a poor employee or be more likely to engage in illegal conduct on the job? Does the answer to this question change based on whether one is a controller for a small, privately-held business, an employee with a travel card with a $ 5000 limit, or a janitor who enters offices at night to clean? Finally, how much freedom should be accorded to employers to use their own discretion in determining what information is needed to guard against a negligent hire?

Predictably, employers tend to seek the fewest possible restrictions on their ability to make decisions regarding applicants and employees. With the United States struggling to emerge from an economic calamity unparalleled since the Great Depression, however, applicants laden with personal debt caused by unemployment, reset mortgage payments, and record medical debt may be unfairly penalized by the reluctance to limit employers' freedom in using credit reports for hiring purposes. 1 This burden frequently falls more heavily on African- Americans and Hispanics, groups that historically have had higher unemployment rates, 2 less favorable credit ratings, 3 and problems accessing favorable credit terms 4 because of "redlining." 5

[*161] Although a bank's ability to check a mortgage applicant's credit-worthiness is largely uncontroversial, the connection between having good credit and being a good employee is more contested. 6 Although businesses must certainly have the ability to protect themselves against fraud, the ends cannot justify using any and all means to identify potential criminal activity. Since Congress's enactment of the Fair Credit Reporting Act (FCRA) 7 in 1970, employers have been permitted to condition employment offers on credit checks with certain safeguards. Although the FCRA was passed largely to protect consumers from abuses in the use of credit reports, it did not fundamentally alter the continuing right of employers to use credit checks in employment decisions. Thus, although applicants may withhold permission for a credit check, doing so is tantamount to foregoing the employment opportunity in question. Recently, however, Representative Steven Cohen (D., Tenn.) introduced H.R. 3149 and subsequently H.R. 321 (The Equal Employment for All Act) to amend the FCRA and strictly limit the use of credit reports in employment decisions. 8 Additionally, nine states have passed laws addressing the use of credit reports for hiring purposes, and twenty-four more are considering similar legislation. 9

1 For general background on the financial crisis, see Richard Heinberg, The End of Growth: Adapting to Our New Economic Reality (2011); Michael Lewis, Boomerang (2011); Gretchen Morgenson & Joshua Rosner, Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon (2011).

2 David G. Savage, Anti-Bias Agency Cracks Down on the Use of Credit and Criminal Checks in Job Screenings, L.A. Times, Dec. 27, 2010, at A8 (discussing the disparate impact of credit history on black applicants).

3 Id.

4 Jonathan Brown & Charles Bennington, Racial Redlining: A Study of Racial Discrimination by Banks and Mortgage Companies in the United States, GIS for Equitable and Sustainable Communities (1993), available at http://public- gis.org/reports/redindex.html.

5 Clea Benson, A Renewed Crackdown on Redlining, Bus. Wk., May 5, 2011, http://www.businessweek.com/magazine/content/11_20/b4228 031594062.htm (last visited Feb. 10, 2012) (explaining that the term "redlining' "...dates from the 1930s, when the Federal Housing Administration drew up maps using red ink to delineate inner-city neighborhoods considered too risky for lending. Congress later passed laws banning lending discrimination on the basis of race and other characteristics.").

6 See discussion in Part II ("Literature Review").

7 Fair Credit Reporting Act, Pub. L. No. 91-508, 84 Stat. 1128 (1970) (codified as amended in scattered sections of 15 U.S.C.)

8 Equal Employment for All Act, H.R. 321, 112th Cong. (2011); Equal Employment for All Act, H.R. 3149, 111th Cong. (2010). The 2012 bill appears to have little chance of making it out of committee.

9 Sara Murray, Employer Credit Checks on Job Seekers Draw Scrutiny, Wall St. J., Oct. 21, 2010, at A5 (discussing four states that have limited the practice of credit checks and mentioning the EEOC hearing on the issue the day before).

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This Article reviews the literature to determine the connection, or lack thereof, between good credit and good employment. We examine existing and proposed federal credit check laws. We analyze the judiciary's response to claims that the use of credit checks has had a disproportionate impact on minorities, particularly African-Americans and Hispanics, and is thus tantamount to race discrimination under Title VII of the 1964 Civil Rights Act. Additionally, the problems of proof associated with a disparate impact theory under the Supreme Court's present jurisprudence are discussed, as well as the lack of availability of punitive damages under the prevailing statutory scheme. 10 We review the limits of the utility of both existing and proposed state laws restricting the use of credit checks.

[*162] Finally, we propose a model statute that would safeguard the rights of applicants, employees, and employers alike, and would allow people to get back on their feet economically without facing additional and unnecessary barriers to employment. If the economy is to grow and recover, workers need to have confidence that their medical debt and underwater mortgages will not doom them to the black hole of poverty, while employers concurrently need to retain the freedom to act reasonably in screening applicants for criminal conduct.

[*163]

I. Literature Review 11

Two previously obscure social scientists have been catapulted to the frontlines of the debate over the disutility of credit reports in predicting [*164] employee performance. 12 Professors Jerry Palmer and Laura Koppes of Eastern Kentucky University presented papers in 2003 and 2004 on the connection between the use of credit checks and employee turnover. 13 While turnover does not seem to be precisely what employers are most concerned about when using credit checks, their 2003 paper Further Investigation of Credit History as a Predictor of Employee Turnover concluded that "credit history had no validity at differentiating between "negative' (e.g., terminated for dishonesty) vs. "non-negative' (e.g., sickness, relocation) reasons for leaving and had no validity at

10 See infra text accompanying notes 117-145.

11 For a review of a number of sources, see generally Dorothy C. Bagwell & Jinhee Kim, Financial Stress, Health Status, and Absenteeism in Credit Counseling Clients, 21 J. Consumer Educ. 50 (2003); E. Thomas Garman et al., The Negative Impact of Employee Poor Personal Financial Behaviors on Employers, 7 Fin. Counseling & Planning 157 (1996), available at http://creditojusto.org/files/48.pdf ("[demonstrating] that there are substantial costs to employers caused by the stresses associated with poor personal financial behaviors of employees"); Gregory M. Hurtz, & John J. Donovan, Personality and Job Performance: The Big Five Revisited, 85(6) J. Applied Psychol. 869 (2000); Jinhee Kim, & E. Thomas Garman, Financial Stress and Absenteeism: An Empirically Derived Research Model, 14(1) Fin. Counseling & Planning 31 (2003); Jinhee Kim, & E. Thomas Garman, Financial Stress, Pay Satisfaction, and Workplace Performance, 36(1) Compensation & Benefits Rev. 69 (2004); Jinhee Kim et al., Relationship Between Financial Stress and Workplace Absenteeism of Credit Counseling Clients, 27(3) J. Family & Econ. Issues 458 (2006); Marsha L. Nielsen & Kristine M. Kuhn, Late Payments and Leery Applicants: Credit Checks as a Selection Test, 21(2) Emp. Responsibilities & Rts. J. 115 (2009); Edward S. Oppler et al., The Relationship Between Financial History and Counterproductive Work Behavior, 16(4) Int'l J. Selection & Assessment 416 (2008); Vanessa Gail Perry, Giving Credit Where Credit Is Due: The Psychology of Credit Ratings, 9(1) J. Behavioral Fin. 15 (2008) (finding that "consumers with higher levels of financial knowledge and consumers with an internal locus-of-control have higher credit scores"); A.D. Prawitz et al., Employee Financial Distress, Emotional Health Risk, and Absenteeism, Proceedings of the 2010 Annual Eastern Family Economics/Resource Mgt. Conference 4 (2010); Credit History Not a Good Predictor of Job Performance or Turnover, Soc. for Indus. & Organizational Psychol., Jan. 16, 2004, http://www.newswise.com/articles/view/502792/ (discussing unpublished study of Jerry Palmer & Laura Koppes); Andrew Martin, As a Hiring Filter, Credit Checks Draw Questions, N.Y. Times, Apr. 9, 2010, http://www.nytimes.com/ 2010/04/10/business/10credit.html ("At this point we don't have any research to show any statistical correlation between what's in somebody's credit report and their job performance," said Eric Rosenberg of the TransUnion credit bureau.); David W. Myers, Credit Rating Could Hurt Job Prospects: Employers Prefer to Hire People Who Pay Their Bills, New Orleans Times-Picayune, Jan. 22, 2000, at R3; So-hyun Joo, Personal Financial Wellness and Worker Job Productivity, (Apr. 15, 1998) (unpublished doctoral dissertation, Virginia Polytechnic Inst. & State Univ.); Jerry K. Palmer & Laura L. Koppes, Further Investigation of Credit History as a Predictor of Employee Turnover, presented at the 15th

20 Va. J. Soc. Pol'y & L. 159, *161

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distinguishing these employees from those who remained on the job." 14 The paper looked at 178 employees in six different locations and concluded that "credit history data have no validity at predicting employee performance measures." Professors Palmer and Koppes then stated that the "use of a non-valid test to select employees and predict their performance is practically no different than selecting employees randomly." 15

In their 2004 paper, Investigation of Credit History Validity at Predicting Performance and Turnover, Palmer and Koppes again examined credit history and turnover. 16 They concluded:

We investigated the validity of applicant credit report data at predicting subsequent performance and termination for 178 employees at a large corporation. Predictors extracted from credit reports had no validity at predicting either of the criteria. 17 We recommend caution in the use of credit report data for making selection decisions. 18

[*165] Although both articles reference other research indicating that credit history may be appropriate where an employee's job responsibilities include require access to the employer's or client's money, 19 they nevertheless conclude that the context of employment decisions is different. Many employees struggle with difficult financial circumstances at home, but still are still able to perform adequately at work.

Although there has been something of a dearth of law review articles on this topic, 20 several authors have concluded that there is insufficient evidence to support the use of credit checks as a screening device in employment decisions other than when required by law or for certain specified types of positions. 21 The primary basis for objecting to the use of credit checks is the lack of demonstrable evidence connecting credit reports to predicting an applicant's or employee's criminal behavior or job performance. 22 Furthermore, the practice tends to have a disparate impact on constitutionally protected groups, namely African-Americans.

The scholarship of Professor Elizabeth Warren provides support for the position that the broad use of credit checks in employment decisions is inappropriate. Professor Warren has written a number of articles chronicling the

annual convention of the American Psychological Society (2003) (on file with author); Jerry K. Palmer & Laura L. Koppes, Investigation of Credit History Validity at Predicting Performance and Turnover, Society for Industrial and Organizational Psychology, 19th Annual Convention (2004) (on file with author).

12 Jerry K. Palmer & Laura L. Koppes, Further Investigation of Credit History as a Predictor of Employee Turnover, presented at the 15th annual convention of the American Psychological Society (2003) (on file with author); Jerry K. Palmer & Laura L. Koppes, Investigation of Credit History Validity at Predicting Performance and Turnover, Society for Industrial and Organizational Psychology, 19th Annual Convention (2004) (on file with author).

13 Id.

14 Palmer & Koppes, Further Investigation of Credit History as a Predictor of Employee Turnover, supra note 12, at 1.

15 Id. at 6.

16 Palmer & Koppes, Investigation of Credit History Validity at Predicting Performance and Turnover, supra note 12, at 1.

17 Palmer and Koppes suggest that other measures such as "...ability tests, interviews, personality tests, and biographical data tests..." have been researched extensively. Id. at 1 (referring to R. D. Gatewood & H. S. Feild, Human Resource Selection (5th ed., Harcourt 2001)).

18 Palmer and Koppes based their conclusion on the lack of empirical evidence. They also point out the potential that more African-Americans may have had delinquency notices (as compared to whites) which would affect a credit report. Palmer & Koppes, Investigation of Credit History Validity at Predicting Performance and Turnover, supra note 12 at 6.

19 Id. at 1 (citing Stephen C. Barth, STEM the Tide by Selecting the Right Employee, 2001 Lodging Hospitality 12).

20 See generally Roberto Concepcion, Pre-Employment Credit Checks: Effectuating Disparate Impact on Racial Minorities Under the Guise of Job-Relatedness and Business Necessity, 12 Scholar 523 (2010); Ruth Desmond, Comment, Consumer Credit Reports and Privacy in the Employment Context: The Fair Credit Reporting Act and the Equal Employment for All Act, 44 U.S.F. L. Rev. 907 (2010); Kelly Gallagher, Note, Rethinking the Fair Credit Reporting Act: When Requesting Credit Reports for

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economic woes of the American middle class over the last ten years. 23 Using a database of bankruptcies, Professor Warren has [*166] sought to debunk the myth that the middle class spent itself into crisis by going into debt to purchase unnecessary goods. 24 Indeed, Professor Warren's research has documented that the primary causes of middle class economic anxiety are medical debts, costs associated with divorce, and traumatic job loss. 25

This is not to suggest that careless spending or fraud never occur; rather, Professor Warren's research demonstrates that profligate spenders make up a far smaller fraction of those middle class Americans facing bankruptcy than is popularly supposed. If valid, Professor Warren's research has significant implications for the use of credit reports in employment:

The bankruptcy data expose even greater racial disparities among homeowners - those who achieved the most tangible sign of participation the middle class. [*167] Hispanic and black homeowners face sharply increased risks of filing for bankruptcy as compared to their white counterparts. The immediate reasons that trigger a bankruptcy filing - job loss, medical problems and family breakup - are remarkably similar among all three racial groups, which suggests that their financial problems are not isolated to a single, identifiable event but that a more widespread vulnerability of families of color is at work. These data may suggest more pervasive job difficulties and more trouble financing medical care. Perhaps more critically, the data presented here are consistent with other reports that suggest racial minorities are singled out for predatory loans and other subprime credit that drain billions of dollars out of the pockets of these families and push them into financial collapse. 26

Predatory loans at high interest rates can cause even a family with two breadwinners to default and fall into homelessness and bankruptcy.

Professor Warren notes that the general population is not, in fact, squandering its scarce dollars on frivolous purchases - people actually spend 21% less on clothing than they did in the early 1970s, 27 and families today

"Employment Purposes" Goes Too Far, 91 Iowa L. Rev. 1593, 1599 n.36 (2006) ("Searches in academic business, legal, and social-sciences journals do not provide studies identifying a correlation between credit score and job performance."); Sharon Goott Nissim, Stopping a Vicious Cycle: The Problems with Credit Checks in Employment and Strategies to Limit Their Use (2010) (unpublished paper), available at http://works.bepress.com/sharon_nissim/1/.

21 Gallagher, supra note 20, at 1605.

22 Concepcion, supra note 20 at 530-31; see also infra notes 110-66 and accompanying text.

23 See generally Teresa A. Sullivan et al., The Fragile Middle Class: Americans in Debt (2000); Ford Elsaesser et al., The Gloom & Doom Trap 22-Jan. Am. Bankruptcy Inst. J. 50, at 50 (Dec. 2003/Jan. 2004) (reviewing Elizabeth Warren & Amelia Warren Tyagi, The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke (2003)); Melissa B. Jacoby & Elizabeth Warren, Beyond Hospital Misbehavior: An Alternative Account of Medical Related Financial Distress, 100 Nw. U. L. Rev. 535 (2006); Teresa A. Sullivan et al., Less Stigma or More Financial Distress: An Empirical Analysis of the Extraordinary Increase in Bankruptcy Filings, 59 Stan. L. Rev. 213 (2006); Elizabeth Warren, The Economics of Race: When Making It to the Middle Is Not Enough, 61 Wash. & Lee L. Rev. 1777 (2004); Elizabeth Warren, The New Economy and the Unraveling Social Safety Net: The Growing Threat to Middle Class Families, 69 Brook. L. Rev. 401 (2004); Elizabeth Warren, The Middle-Class Crunch: Symposium Introduction: A New Conversation About the Middle Class, 44 Harv. J. on Legis. 119 (2007); Elizabeth Warren, The Over-Consumption Myth and Other Tales of Economics, Law and Morality, 82 Wash. U. L.Q. 1485 (2004).

24 Datasets discussed in Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence Westbrook, The Fragile Middle Class: Americans in Debt 263 (2000) [hereinafter Fragile Middle Class] (discussing the 1991 dataset); Elizabeth Warren & Amelia Warren Tyagi, The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke 181-88 (2003) [hereinafter Two- Income Trap] (discussing the 2001 dataset); Teresa A. Sullivan et al., Less Stigma or More Financial Distress: An Empirical Analysis of the Extraordinary Increase in Bankruptcy Filings, 59 Stan. L. Rev. 213, 218 (2006) (noting Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence Westbrook, As We Forgive Our Debtors: Bankruptcy and Consumer Credit in America 342 (1989) [hereinafter As We Forgive Our Debtors] (discussing the 1981 dataset); cf. Stephanie Ebbert & Michael Levenson,

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often conserve financial resources by shopping at low-cost, high-volume retailers such as Wal-Mart. 28 The cost of appliances has dropped, 29 but necessary expenses like mortgages, health insurance, transportation and child care have increased dramatically. 30 Families are typically spending around 75% of their income on essential goods, leaving little room in the budget for luxury purchases.

Human resources professionals have produced a body of research indicating that a number of companies use credit reports as a screening device for prospective employees, which is legal under federal and state law. The Society for Human Resources Management found that 13% of businesses perform credit checks on all candidates and 47% on some candidates. 31 The justifications given for such checks include reduction of theft, embezzlement, and other criminal activity (54%); managing [*168] legal liability for negligent hiring (27%); assessing the overall trustworthiness of the job candidate (12%); and compliance with applicable state law mandating background checks (7%). 32 Credit checks are thus fairly pervasive and must be faced by individuals seeking employment or those already employed, even in low-level jobs.

This pervasive use of credit checks in the hiring process, combined with concerns about the utility of credit checks in predicting employee performance, inspired H.R. 3149. Congressional hearings on H.R. 3149, as well as the associated subcommittee hearings, 33 addressed the methodology, impact, and use of consumer reports under the FCRA. Of significant concern at these hearings was the impact of credit check policies on minorities. Representative Luis Gutierrez (D., Ill.), Chairman of the Subcommittee on Financial Institutions and Consumer Credit, stated that

No fewer than eight separate studies in the last 15 years … have documented the lower report quality of minorities. The Equal Employment Opportunity Commission has repeatedly expressed their concern that these credit reports for employment purposes might violate title VII of the Civil Rights Act. 34

Warren Politics Rooted in Academia, Bos. Globe, Aug. 19, 2012, http://articles.boston.com/2012-08- 19/politics/33260175_1_law-schools-elizabeth- warren-assistant-professor (discussing how a Rutgers Professor challenged dataset because name and case numbers were not recorded and both the National Science Foundation and University of Texas did not sustain the charge).

25 Warren, The Economics of Race: When Making It to the Middle Is Not Enough, supra note 23, at 1784.

26 Id. at 1779.

27 Elizabeth Warren, The Over-Consumption Myth and Other Tales of Economics, Law and Morality, 82 Wash. U. L. Q. 1485, 1493 (2004).

28 Id.

29 Id. at 1494 ("When the microwave oven, dishwasher, and clothes dryer are combined with the refrigerator, washing machine and stove, families are actually spending 44% less on major appliances today than they were a generation ago.").

30 Id. at 1503.

31 Id. at 3.

32 Id. at 10.

33 See Keeping Score on Credit Scores: An Overview of Credit Scores, Credit Reports, and Their Impact on Consumers: Hearing Before the Subcomm. on Fin. Inst. and Consumer Credit of the H. Comm. on Fin. Serv., 111th Cong. (2010), available at http://financialservices.house.gov/media/file/hearings/ 111/printed%20hearings/111-117.pdf; Use of Credit Information Beyond Lending: Issues and Reform Proposals: Hearing Before the Subcomm. on Fin. Inst. and Consumer Credit of the H. Comm. on Fin. Serv., 111th Cong. (2010), available at http://financialservices.house.gov/Media/file/hearings/111 /Printed %20Hearings/111-134.pdf.

34 Legislative Hearing on H.R. 3149, The Equal Employment for All Act: Hearing Before the Subcomm. on Fin. Inst. and Consumer Credit of the H. Comm. on Fin. Servs., 111th Cong. 2 (2010) [hereinafter Legislative Hearing] (statement of Hon. Luis Gutierrez, Chairman, Subcomm. on Fin. Inst.).

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Representative Gutierrez expressed concern about the unfair effect this could have on minority constituents and the lack of evidence connecting credit reports and job performance.

Other leaders echoed concerns regarding the disparate impact of credit checks on vulnerable groups. Sarah Crawford, senior counsel for the Employment Discrimination Project for the Lawyers' Committee for Civil Rights Under Law, testified that 60% of members use credit checks as a hiring tool, up from 35% in 2001. Crawford further testified that "this practice is based on flawed assumptions that have detrimental effects on those who simply want to work so they can pay their bills and [*169] escape the vicious cycle of debt and unemployment." 35 Similarly, Chi Chi Wu, testifying on behalf of the National Consumer Law Center, characterized denying someone a job because of a poor credit check as "the proverbial process of kicking someone when they're down." 36

In contrast, those opposed to the legislation focused on the rights of employers and the importance of allowing those making hiring decisions to use whatever tools they've found useful to make those decisions. Representative Randy Neugebauer (R. Tex.) testified at the opening of the hearing, stating:

There are several troubling things about this legislation, one, taking away an individual's right. We are moving left, but we are skipping to the left in this area. And also telling businesses that they can't use tools that they have evidently found to be effective in making hiring decisions, to me, is another taking, and certainly our Founders didn't intend for us to move in that direction. 37

Other opponents of H.R. 3149 found it to be overbroad; still others argued that the use of credit checks in the hiring process had been overstated and thus the legislation was unnecessary.

Additionally, Donald Livingston, an attorney, testified that the job-relatedness requirement under Title VII of the Civil Rights Act is sufficient to limit the use of credit checks without further legislation. 38 In Livingston's view, the proposed legislation would serve less well because "except in the narrow circumstances, it would prevent employers from using credit history." 39

[*170] Judy Gootkind of the National Association of Professional Background Screeners also testified against H.R. 3149. She noted the concern of members of her organization that the legislation would prohibit credit checks and credit reports for a wide variety of positions, to the detriment of employers. 40

Similarly, Colleen Parker Densten spoke as a representative for the Society for Human Resource Management (SHRM), noting that according to an SHRM study, only 60% of members conduct credit checks, substantially the same as the 61% figure reported in a similar study in 2004. 41 She also noted that most organizations do not

35 Id. at 11.

36 Id. at 12.

37 Id. at 3-4.

38 Id. at 13-14.

39 Id. at 13. Compare Livingston's claim to the statement of Adam Klein, an attorney with Outten & Golden who represents plaintiffs: "The reality is that applicants who seek employment are not told that they are denied employment based on their poor credit history what they may find out is that they didn't get the job but what they will not find out is why it makes logical sense why would a prospective employer tell an applicant the reasons they did not get hired it is obvious that for the most part in an overwhelming majority of cases are instances where applicants are denied employment they're not going to have any idea that the use of credit was a factor in the decision." Id. at 14-15. He goes on to testify that when a job applicant finds out that there has been a credit check and that the credit check led to the denial of the job that this is a "rare, rare, instance." Id. Most individuals, therefore, may never know that a credit check caused their adverse employment experience.

40 Id. at 15-17.

41 Id. at 17-19.

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conduct credit checks at all. Ms. Densten further noted that 87% of organizations that initiate credit checks do so only after contingent offers are made. 42

Later, Jacqueline Berien, Chair of the Equal Opportunity Commission, convened another hearing on the issue of credit checks in employment decisions. 43 The parties included individuals who had testified previously at the Congressional hearings on H.R. 3149. Michael Eastman, Executive Director of Labor Policy for the U.S. Chamber of Commerce, testified as well. He gave an example of the type of company that typically asks for a Consumer Report: 44

A typical example, is a company I spoke with in the insurance services industry. This company employs about 5,000 people in the United States, and it includes credit history as a component of the background check for approximately 100 of those employees that have direct access to either the companies or its clients' funds. This company has had experience with former employees embezzling client funds and believes examining credit history is one important tool in making hiring decisions. Interestingly, this company told me that they intended to decrease the use of credit history in the future because of improvements in technology that will enable them to better prevent embezzlement by employees in the future. 45

Dr. Avis Jones-DeWeever argued that using a credit history is not a predictive way to determine who will be a good employee. She noted: [*171]

I would submit to you that Bernie Madoff most likely had a wonderful credit score and had a wonderful credit history, but he was a pilferer. And so I don't believe that there is a correlation. There has not been any sort of statistical analysis that have shown me any correlation between what is in one's credit record and one's performance on the job in terms of your honesty, whether or not you will steal, whether or not you will commit workplace violence. 46

While she acknowledged that a bad credit check might be a reasonable basis for a hiring decision under some limited circumstances, she contended that credit checks are widely overused. 47

One problem identified in the hearings with the overbroad nature of credit checks is that the different categories of debt on a credit report are not reported. Medical debt often shows up as credit card debt on an applicant's report. Ms. Chi Chi Wu pointed out that although employers make a distinction between medical and credit card debt during a hiring decision, in practice, medical debt is usually indistinguishable from credit card debt on the report. 48 Ms. Wu also pointed out that gambling debt is often hidden on a credit report because it shows up as credit card debt. 49

Equal Employment Opportunity Commissioner Chai R. Feldblum made reference to the fact that human resource management data indicates that 13% of employers currently conduct credit checks on all job candidates. 50

42 Id.

43 Transcript: Employer Use of Credit History as a Screening Tool, EEOC, Oct. 20, 2010, http://www.eeoc.gov/eeoc/meetings/10-20-10/transcript.cfm.

44 Id. at 15.

45 Id.

46 Id. at 20.

47 Id.

48 Id. at 35.

49 Id. at 38.

50 Id. at 33.

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Commissioner Feldblum noted the dearth of complaints and queried whether applicants were even aware that the reason they were not being hired had turned on a credit report. 51

Pamela Devata, partner at Seyfarth Shaw, noted that there has been a lot of discussion about whether employees actually have knowledge that they were denied employment based on credit. 52 She stated that in her experience:

When employers seek a credit report, they leave an informational trail. The request shows up as a soft hit on an applicant's credit report. And as we all know, applicants and any individual is allowed to get a copy of [*172] their credit report on an annual basis. And if you space it out, really consumers can get it once every four months from each of the different credit bureaus. 53

She also stated that employers risk litigation and FTC enforcement if they fail to follow the FCRA, which includes actual damages, statutory damages, attorneys' fees and punitive damages, as well as protection under Title VII. Nevertheless, the number of enforcement actions brought is low and thus the threat faced by employers is minimal.

Although there is little existing research supporting a strong correlation between credit rating and propensity for fraud or criminal behavior, employers nevertheless zealously guard their right to use credit reports as a tool in the arsenal of applicant and employee evaluation. This right, however, must be balanced with applicants' interests. To date, there has not been a single court case that has limited this use of credit reports generally or under Title VII of the Civil Rights Act. 54 In light of the current recession, the increase in the use of credit checks as a screening mechanism, and the lack of an outright prohibition by federal law, state action is necessary to fill the gap in protection for applicants and employees.

II. Current and Proposed Federal Law

Current federal law recognizes the need to protect both consumers and employers. The FCRA contains many protections for consumers, but also contains preemption provisions that prevent applicants from accessing the more powerful protections from disparate impact that exist in some state laws.

The original FCRA, 55 enacted in 1970, attempted to protect both the individual consumer and the health of the overall economy. The statute's authors described its purpose as requiring "consumer reporting agencies" to "adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer… ." 56 Although the FCRA attempts to balance protections for consumers with those for businesses, from the outset, the statute assigned to employers the unrestricted right [*173] to view a job applicant's credit history before making an employment decision. 57

Giving employers the right to order credit checks at will as a prerequisite for employment was not problematic in 1970 because of a more restricted view of employee rights. Over time, however, this FCRA provision has become the foundation for the widespread use of credit checks in employment decisions. Another fundamental shortcoming of the FCRA is that the statute makes no attempt to limit the employer's right to perform credit checks to the kinds

51 Id. at 53-54.

52 Id. at 48.

53 Id.

54 See infra notes 69-133 and accompanying text.

55 Pub. L. No. 91-508, §§601-622, 84 Stat. 1114, 1128-36 (1970) (codified as amended at 15 U.S.C. §§1681-1681x (2012)).

56 Pub. L. No. 91-508, § 602(b), 84 Stat. 1114, 1128 (1970) ("Findings and purpose") (codified at 15 U.S.C. § 1681(b) (2012)).

57 Pub. L. No. 91-508, § 604, 84 Stat. 1114, 1129 (1970) ("Permissible purposes of reports") (codified as amended at 15 U.S.C. § 1681b (2012)).

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of jobs that may tempt employees with bad credit to access company funds. Thus, at many companies, all potential employees, even those seeking jobs that do not involve access to company funds, must submit to credit checks.

Although the FCRA has been amended twice, this statute still provides little relief to job seekers with poor credit. The first set of amendments to the FCRA came in the Consumer Credit Reporting Reform Act (CCRRA) of 1996. 58 The CCRRA amended the FCRA to strengthen protections for job applicants by mandating that employers get permission from an applicant before reviewing credit information. Additionally, the CCRRA required employers to provide applicants with a copy of their credit information used in the hiring decision, as well as an explanation of the applicant's rights. 59

Strengthened disclosure and consumer protection rules notwithstanding, the 1996 Act contains other provisions that disadvantage job applicants. Chief among these is the preemption of more consumer-friendly state laws which might better protect job seekers with poor credit from adverse impact in employment decisions. 60 There are two particularly troublesome areas in which the FCRA trumps state law. The first is the time allowed to Credit Reporting Agencies (CRAs) for correcting mistakes in credit reports. The second is the scope [*174] of adverse action which the FCRA allows employers to take, based on an employee's credit information. 61

In 2004, the FCRA was again amended through the Fair and Accurate Credit Transactions Act (FACTA), 62 which provided increased protection against identity theft. FACTA enabled individuals to become more proactive against identity theft by providing free access to credit reports, allowing individuals to place fraud alerts on credit reporting agency accounts, and protecting private information on credit card receipts and in employer files. 63

However, the consensus of consumer advocates is that, in spite of these added protections, FACTA nevertheless continues to disadvantage consumers by maintaining the preemption provisions in the 1996 amendments, as well as by adding new areas in which the FCRA preempts state laws. 64 In fact, there was significant pressure from financial industry lobbyists to enact FACTA in order to retain the CCRRA preemption provisions that were set to expire in 2004. 65 In essence, by retaining and expanding the areas in which the FCRA preempts state credit protection laws, FACTA blocked the expansion of consumer protection.

58 Pub. L. No. 104-208, 110 Stat. 3009 (1996) (codified as amended at 15 U.S.C. §§1681-1681t (2012)).

59 Pub. L. No. 104-208, § 2407(b), 110 Stat. 3009 (1996) (codified at 15 U.S.C. § 1681e (2012)) (requiring relevant notices to users of credit reports). The Federal Trade Commission is charged with providing a delineation of consumer rights under the FCRA to job applicants who are being asked to allow a credit check. 15 U.S.C. § 1681g(c)(1)(A) (2012).

60 Pub. L. No. 104-208, § 2419, 110 Stat. 3009 (1996) (codified at 15 U.S.C. § 1681t (2012)). Section 1681t exempts state laws in effect on September 30, 1996 from preemption by the FCRA. Id.

61 The 1996 amendment contained a preemption provision for state laws in seven areas. Id. The two areas identified here are the ones that most directly relate to disparate impact on employment decisions.

62 Pub. L. No. 108-159, 117 Stat. 1952 (codified as amended at 15 U.S.C. § 1681 (2012)).

63 Pub. L. No. 108-159, § 112(a), 117 Stat. 1952 (codified at 15 U.S.C. § 1681c-1 (2012)). The consumer protections against identity theft in this section are key additions that FACTA makes to the FCRA. Section 1681c-2 also increases consumer protection by blocking information resulting from identity theft.

64 In addition to preemptions in the CCRRA, FACTA adds preemption of state law in the following areas: obligation to provide information on identity theft to victims; consumers' rights to opt out of marketing solicitation groups; risk-based pricing notices; annual free credit reports; and credit card disclosures. Id.§§151(a)(2), 214(b)(2), 311(b), 711.

65 See Robert F. Brennan, Faith and Credit: Erroneous Federal District Court Decisions on California's Consumer Credit Reporting Agencies Act Need to Be Overruled, L.A. Law. 36, 37 (Nov. 2004). Financial industry lobbyists were extremely proactive about retaining CCRRA preemptions in FACTA because they believed that, without this preemptive provision, state laws would in some instances limit business access to credit information.

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The FCRA has significantly expanded the ways in which consumer credit information is protected, as well as the ease with which consumers can access this information. However, the evolution of federal law protecting the privacy of consumer credit information has been blunted by inclusion in the FCRA of the preemption provisions of the 1996 and 2004 amendments. Because they block access to protections afforded by [*175] more consumer- friendly state laws, these amendments will have a disparate impact on job applicants from socioeconomic classes that typically have poor credit.

Currently, however, there is an active attempt in the U.S. House of Representatives to amend the FCRA to strengthen protection against negative credit checks for all job applicants, thus mitigating the disparate impact of such employer checks on African-American and Hispanic job applicants. H.R. 321, the Equal Employment for All Act, 66 would amend the FCRA to prohibit employers from using credit checks in employment unless good credit is clearly related to effective performance of a specific job. Thus, the bill would allow a credit check only for a job "that requires a national security or FDIC [Federal Deposit Insurance Corporation] clearance," that is "with a State or local government agency which otherwise requires use of a consumer report," or that involves "a supervisory, managerial, professional, or executive position at a financial institution." 67 H.R. 321 is currently in the early stages of the enactment process and is being discussed in committee before it goes to the floor for debate. The same bill was introduced during the last Congressional session, but failed to progress out of committee before the end of the term. 68

H.R. 321 mediates between the need to protect job applicants and the need to preserve the financial integrity of businesses, directly addressing the disparate impact on African-Americans and Hispanics that arises under the current law. If enacted, this bill would align federal law with state laws that tie credit checks to clear business necessity, and would largely negate the effects of the preemption provisions of the FCRA. It remains to be seen, however, whether Congress will be able to enact this bill given the current political climate.

III. Credit Checks: Trajectory of Case Law

An attempt to strike a balance between alleviating the disparate impact of hiring policies on minority candidates and protecting legitimate business interests can be seen in the relevant case law. Typically, the balance struck reflects the contemporary national political climate at the time of the decision.

In the era immediately following the passage of Title VII of the Civil Rights Act of 1964, 69 courts in disparate impact cases largely embraced [*176] Congress's intent to eliminate job discrimination. In its landmark decision, Griggs v. Duke Power Co., the Supreme Court held that an employer's good intent - or mere absence of discriminatory intent - will not redeem employment procedures or testing mechanisms "that operate as "built-in headwinds' for minority groups and are unrelated to measuring job capability." 70 Although the Court recognized the potential usefulness of testing or measuring procedures for the evaluation of applicants' job qualifications, it interpreted Title VII to proscribe giving such instruments controlling force unless they are a demonstrably reasonable measure of job performance. 71 In doing so, the Court emphasized that many common hiring practices inadvertently impact particular socioeconomic classes of job applicants disproportionately, without conscious racism

66 H.R. 321, 112th Cong. (2011), available at http://www.gpo.gov/fdsys/pkg/ BILLS-112hr321ih/pdf/BILLS-112hr321ih.pdf.

67 Id. at § 2(b)(3).

68 Equal Employment for All Act, H.R. 3149, 111th Cong. (2009).

69 Civil Rights Act of 1964, Pub. L. No. 88-352, Title VII, §§701-716, 78 Stat. 241, 253-66 (codified as amended in scattered sections of 42 U.S.C.).

70 Griggs v. Duke Power Co., 401 U.S. 424, 432 (1971).

71 Id. at 436.

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on the part of the employer. 72 Griggs likewise applied the provisions of Title VII to advance employment rights of minority candidates.

While Griggs dealt with the disparate impact that job requirements such as a high school diploma or passing test score will often have on minority applicants, lower courts extended that logic throughout the 1970s and 1980s to prohibit a variety of additional practices. Courts reached similar conclusions about discharges based on wage garnishment, 73 arrest records, 74 and conviction records. 75 One of the few post-Griggs decisions to apply the disparate impact standard directly to credit checks was the Seventh Circuit's 1978 ruling in United States v. City of Chicago. 76 In City of Chicago, the court held that police departments performing credit checks were required to prove that doing so did not adversely impact minority job applicants. As in other early cases under Title VII, City of Chicago set a low bar for the statistical [*177] proof necessary to establish that a given hiring practice had a disparate impact on minority candidates. 77

Under the framework used in City of Chicago, a prima facie case of discrimination is established when evidence shows "that the tests in question select applicants for hire or promotion in a racial pattern significantly different from that of the pool of applicants." 78 Upon a showing of disparate impact on minority applicants, the burden shifts to the employer to show that the requirement in question is the product of nondiscriminatory factors and has a manifest relationship to the employment in question. 79 In a trend similar to that characterizing the evidentiary standard of proof in other disparate impact cases, courts in early credit cases showed a penchant for finding suspect factors immutable, often pushing back against the more common view that credit history was within the control of the individual.

In finding that wage garnishment is an immutable characteristic, post-Title VII courts have relied on two basic approaches. The first is that "poverty is the root cause of many garnishments" 80 and that poverty is not a condition that people choose voluntarily. In Wallace v. Debron Corp., 81 the Eighth Circuit underscored the fact that people are often born into poverty as a result of minority group membership, and often lack the power necessary to change their economic condition.

72 Id. at 432 (citing, inter alia, 1960 North Carolina census statistics showing that while 34% of white males had completed high school, only 12% of African-American males had done so). Given those statistics, requiring a high school diploma for employment would have a disparate impact on minority candidates. Id.

73 See Johnson v. Pike Corp. of Am., 332 F. Supp. 490, 494-95 (C.D. Cal. 1971) (recognizing a prima facie case of disparate impact under Title VII based on wage garnishment, emphasizing that the sole permissible basis for discriminating against actual or prospective employees is the individual's capability to perform the job effectively).

74 See Gregory v. Litton Sys., Inc., 316 F. Supp. 401 (C.D. Cal. 1970), aff'd, 472 F.2d 631 (9th Cir. 1972) (finding policy of excluding individuals from employment who had suffered a number of arrests without any convictions unlawful under Title VII).

75 Green v. Missouri Pac. R. Co., 523 F.2d 1290 (8th Cir. 1975) (holding that summarily denying employment to applicants on the basis of conviction records constitutes discrimination on the basis of race in violation of Title VII).

76 549 F.2d 415 (7th Cir. 1977).

77 Id.

78 Id. at 427.

79 Id. at 427-28.

80 494 F.2d 674, 676 (8th Cir. 1974).

81 Id. ("There is no evidence in the record that garnishments generally are the result of voluntary conduct undertaken with the knowledge of the consequences … .").

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In Johnson v. Pike Corp. of America, 82 the court highlighted a practical problem with the practice of firing a person because of wage garnishment: it worsens the situation of the employer, the employee, and the creditor, and therefore makes little sense. The Johnson court further emphasized that the factors that cause wage garnishment are often the result of unfriendly financial industry policies that are outside the control of minority groups. 83 The realities about the immutable nature of borderline financial situations for many minority workers may apply equally well to the disparate impact of credit checks.

The same fervor to eliminate job discrimination that rendered post-Title VII courts friendly to plaintiffs attempting to establish a prima facie [*178] disparate impact case also made those courts more willing to scrutinize business necessity defenses presented in response. To this end, courts insisted that defendants prove the specific business necessity of the offending hiring practices. 84 The Johnson court held that employers could not prove business necessity by merely citing inconvenience, expense, or an unsupported assumption that the offending job criterion was related to actual job performance. 85

In Gregory v. Litton Systems, Inc., the Central District of California required actual evidence that people with certain characteristics indeed performed less well in the job in question to justify a credit check. 86 In Carter v. Gallagher, the Eighth Circuit held that conviction records could not be used to disqualify an applicant unless the conviction was relevant to the particular job. 87 The reasoning in these decisions suggests that credit checks are not necessarily born out of business necessity.

The Supreme Court's 1989 decision in Wards Cove Packing Co. v. Antonio, 88 however, marked a clear change in the judiciary's approach to theories of disparate impact. This Court's stricter approach to proving disparate impact, coupled with a more flexible view of business necessity, has continued through recent cases. The Wards Cove Court tightened statistical requirements for establishing disparate impact, mandating that disparate impact statistics be based not on the total number of minority candidates in the general population, but rather on the number of minority candidates in a given applicant pool who possess the required qualifications. 89

To give minority candidates an equal opportunity to prove their ability, the post-Title VII cases examined above minimized the importance of qualifications that underprivileged populations had no opportunity to attain. However, by reinstating the importance of conforming to required job qualifications, the Wards Cove decision suggests that, twenty-five years after the Civil Rights Act of 1964, minority candidates still cannot compete for jobs on equal footing. This approach does not bode well for prohibiting credit checks, since the [*179] Wards Cove line of reasoning implies that minority candidates have an equal opportunity to get their credit under control.

82 332 F. Supp. 490 (C.D. Cal. 1971).

83 Id. at 496 (portraying the adverse employment consequences of wage garnishment as often being "saddled on a poor ignorant person who is trapped in an easy credit nightmare" (internal quotation marks omitted)).

84 Id.

85 Id. at 495 (emphasizing that the employer must meet a strict burden of proving job necessity in order to end job discrimination).

86 316 F. Supp. 401 (C.D. Cal. 1970), aff'd, 472 F.2d 631 (9th Cir. 1972).

87 Carter v. Gallagher, 452 F.2d 315, 320 (8th Cir. 1971) (allowing for the possibility that some convictions could disqualify applicants from some jobs).

88 490 U.S. 642 (1989).

89 Id. at 642-43 (explaining that "petitioners' selection methods or employment practices cannot be said to have had a disparate impact on nonwhites if the absence of minorities holding such skilled jobs reflects a dearth of qualified nonwhite applicants for reasons that are not petitioners' fault.").

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Wards Cove also set the stage for easing the employer's burden in refuting disparate impact claims. The Court adopted the standard of business justification rather than business necessity and shifted the burden of proof to the job applicant. 90 Indeed, Wards Cove represented such a significant departure from the previous Title VII standard that Congress responded by passing the Civil Rights Act of 1991, 91 emphasizing that the burden of proof in disparate impact cases belongs to the employer and that the evidence offered in defense must actually prove business necessity. 92 In spite of Congress's attempt to reinforce the importance of eliminating job discrimination, however, post-Wards Cove cases have often been less than vigilant about requiring defendants in disparate impact cases to provide evidence of strict business necessity.

One example of the modern judicial attitude toward proving business necessity is the Third Circuit's decision in El v. Southeastern Pennsylvania Transportation Authority, 93 in which the court upheld the termination of an employee because of a forty-year-old murder conviction, holding that the employer had a right to manage risk to the public. El lowered the bar for proving business necessity in several ways. The El court maintained that employers had the right to hire the most qualified applicant, 94 affirming the importance of job qualification over promoting equal opportunity. The Third Circuit also introduced risk to public safety as a legitimate consideration for establishing business necessity.

The employer in El was not required to demonstrate that a conviction record was specifically related to the job in question. Instead, the employer could mount a business necessity defense based on the [*180] levels of physical risk posed by different employees. 95 This shift holds employees responsible for immutable characteristics (such as very old conviction records), rather than considering factors such as long-term good behavior or safe performance on the job. This line of reasoning, reinforced in several more recent cases discussed below, could be read to accommodate the notion of credit checks as necessary to the financial safety of the employer's company and to the public.

An analysis of recent cases shows that this more conservative approach to promoting equal employment opportunity still remains the dominant force in judicial reasoning. In 2009, the Supreme Court decided Ricci v. DeStefano 96 (the New England Firefighters case). The Court found for the plaintiff, a Caucasian firefighter, who alleged that he had been the victim of discriminatory treatment based on race. The plaintiff had scored well on a test used by the New Haven Fire Department to assess candidates for promotion within the department. However,

90 Id. at 659 (stressing that challenged employment factors do not have to be ""essential'" or ""indispensable'" to the employer's business because "this degree of scrutiny would be almost impossible for most employers to meet"). The Court went on to state that ""the ultimate burden of proving that discrimination against a protected group has been caused by a specific employment practice remains with the plaintiff at all times.'" Id. (quoting Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 997 (1988)).

91 Pub. L. No. 102-166, 105 Stat. 1071 (1991).

92 Pub. L. No. 102-166, § 2, 105 Stat. 1071 (1991) (noting that that statute was necessary because "the decision of the Supreme Court in Wards Cove Packing Co. v. Antonio … has weakened the scope and effectiveness of Federal civil rights protections [and that] legislation is necessary to provide additional protections against unlawful discrimination in employment").

93 479 F.3d 232 (3d Cir. 2007).

94 Id. at 242 ("Congress has not commanded that the less qualified be preferred over the better qualified simply because of minority origins.") (quoting Griggs v. Duke Power Co., 401 U.S. 424, 436 (1971)).

95 El was a class action suit alleging that conviction checks have a disparate impact on minority job applicants. The Third Circuit found that El, who was convicted of a gang-related murder forty years earlier, when he was fifteen years old, and who had no criminal convictions of any kind since, posed a danger to mentally handicapped and disabled riders were he to drive the van. The public safety risk established for the court a viable business necessity defense.

96 557 U.S. 557 (2009).

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because the test had a disparate impact on minority firemen, the City of New Haven decided to discard the exam, thus invalidating the scores of Caucasian firefighters who might have been promoted based on their scores. 97

In this instance, the New Haven Fire Department had carefully constructed a promotion test that was closely tied to job requirements for Lieutenant and Captain. Their intent was to create a facially neutral test that would not have a disparate impact on any groups of applicants for promotion. 98 In fact, the Fire Department was careful to have cross-racial participation in both the design and administration of the test. Taking these facts into consideration, the Court found that, although the testing process was open and fair, 99 using the test scores for promotion would have a clear adverse impact on African-Americans, since no African-American candidate scored high enough for promotion. 100 To avoid a lawsuit based on disparate impact, the New Haven Fire Department decided not to use the test results as the basis for promotions. This action, however, resulted in disparate treatment of the Caucasian [*181] firefighters who scored well on the exam and thus stood to receive promotions. Subsequently, a group of New Haven firefighters claimed that not using the test scores to make promotion decisions violated their Fourteenth Amendment equal protection rights. 101

Faced with this conflict of rights, the Supreme Court reversed the two lower courts 102 and found for the Caucasian firefighters, reasoning that the New Haven Fire Department's decision to abandon the test results was a violation of Title VII. The Court found that because the test was constructed to address necessary job skills and efforts were made to insure that the test would be facially neutral, the City of New Haven did, in fact, have a valid business necessity defense. 103 In addition, the Court emphasized that there was no equally valid, less discriminatory alternative to this test. Without proof that a business necessity defense would have failed, New Haven was required to honor the test results. In fact, rather than allowing the protocol for disparate treatment suits to unfold, the City chose to anticipate disparate impact suits ex ante. The result was that white firefighters who performed well on the test were victims of disparate treatment on the basis of race, a clear violation of Title VII. In short, the Court held that unintentional discrimination could not justify intentional discrimination. 104

The Court had the difficult task of pitting two statutes and two forms of discrimination against each other. Ultimately, because New Haven had actually engaged in disparate treatment in an attempt to avoid disparate impact, the Court chose to analyze the case under Title VII, finding, in effect, that New Haven had engaged in reverse discrimination.

97 Id. at 562.

98 Id.

99 Id. at 592. The Court, in deciding whether Ricci suffered discrimination under the Equal Protection Clause, offered extensive evidence on which it based its conclusion that the test used was job-related and facially neutral.

100 Id. at 562.

101 Id.

102 See Ricci v. DeStefano, 554 F. Supp. 2d 142 (D. Conn. 2006) (granting summary judgment for New Haven); 264 F. App'x 106 (2d Cir. 2008) (summary order), aff'd per curiam, 530 F.3d 87 (2d Cir. 2008). The Second Circuit panel, which included current Supreme Court Justice Sonia Sotomayor, upheld the summary judgment decision of the district court. The order was then superseded by a per curiam opinion of the entire court. The opinion expressed sympathy for the plaintiffs but asserted that Title VII considerations were paramount and so New Haven was correct to scrap the test. 530 F.3d at 87.

103 Ricci, 557 U.S. at 593 ("If, after it certifies the test results, the City faces a disparate-impact suit, then in light of our holding today it should be clear that the City would avoid disparate-impact liability based on the strong basis in evidence that, had it not certified the results, it would have been subject to disparate-treatment liability.").

104 See id. at 580 ("Petitioners would have us hold that, under Title VII, avoiding unintentional discrimination cannot justify intentional discrimination."). The district court had stated that New Haven's ""diversity' rationale is prohibited as reverse discrimination under Title VII." Ricci, 554 F. Supp. 2d at 156-57.

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105 This ruling stands in striking contrast with the disparate impact cases that emerged from the Griggs line that made [*182] prevention of disparate impact a priority. After twenty-five years of emphasis on protecting minorities, however, the Court reversed course, using Title VII to find that disparate treatment of white males also constituted racism.

The Ricci decision does not necessarily presage the outcome of future lawsuits over credit checks, however, unless credit checks are run solely on certain classes of applicants, or if it can be shown that the employer used the credit check specifically for the purpose of screening out a constitutionally protected class. Absent such obviously targeted use, employers who run credit checks on potential employees will not be liable for disparate treatment.

Indeed, the conservative disposition of the Ricci Court in refusing to grant priority to efforts to protect minorities against job discrimination reflects a mood that may, in fact, result in increased tolerance for credit checks in employment decisions. The Supreme Court's decision in NASA v. Nelson 106 may accurately predict judicial approaches to the privacy of credit information in future disparate impact cases.

NASA deals directly with the extent to which the U.S. government, as an employer, can access personal information in the interests of protecting the security of a work site and hiring a competent, reliable workforce. NASA had required extensive background checks for both federal civil employees and contract workers at their Jet Propulsion Lab. The contract workers objected to a question concerning past counseling or treatment for drug usage, claiming this question requested inappropriate personal information and so violated a constitutional right to personal privacy. 107 The contract workers also saw privacy violations in the open-ended questions sent by NASA to previous employers, alleging that these questions also invited revelation of personal information neither generally disclosed nor narrowly tailored to the job requirements at issue. 108 These claims were predicated on the assumption of a constitutional right to privacy, which had never before been addressed in this context by the Supreme Court. 109

[*183] In this case, the Court found for NASA by using an argument analogous to business necessity. Since the contract workers in question performed work related to national security, requiring technical competence, and funded by taxpayers, the Court felt that information about counseling and treatment for drug problems was necessary to ensure safe and adequate job performance. 110 Furthermore, the Court found that NASA's request for such background information did not violate the contract workers' privacy rights because the confidentiality of the

105 Id. at 585.

106 Nat'l Aeronautics & Space Admin. v. Nelson, 131 S.Ct. 746 (2011).

107 Id. at 754.

108 The Ninth Circuit had held that "the drug "treatment or counseling' question furthered no legitimate interest and was thus likely to be held unconstitutional." Nelson v. Nat'l Aeronautics & Space Admin., 530 F.3d 865, 879 (9th Cir. 2008). The court further concluded that open-ended questions sent to former employers were not narrowly tailored to the government's need to know and so violated information privacy rights. Id. at 880-81.

109 See Nelson, 131 S.Ct. at 764 (Scalia, J., concurring) (pointing out the fallacy of the assumption of a constitutional right to privacy, Justice Scalia notes that "like many other desirable things not included in the Constitution, "informational privacy' seems like a good idea - wherefore the People have enacted laws at the federal level and in the states restricting the government's collection and use of information. But it is up to the People to enact those laws, to shape them, and, when they think it appropriate, to repeal them. A federal constitutional right to "informational privacy' does not exist.").

110 Id. at 750 (finding these questions to be "reasonable, employment-related inquiries").

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information acquired by NASA was protected by the Privacy Act. 111 The Court concluded that the Privacy Act would prevent inappropriate use or disclosure of personal information beyond the employment context.

The Court found precedent for this decision in two 1977 cases, Whalen v. Roe 112 and Nixon v. Administrator of General Services. 113 In these cases, the Court found that although a constitutional right to privacy exists, forced disclosure of private information in employment contexts would not compromise this right because the same statutes that required disclosure also included privacy provisions. 114

The NASA case concerned information about medical treatment, which has traditionally been accorded a high degree of privacy. The decision to prioritize job requirements over disclosure of treatment information is therefore significant. Although the Court found that the Privacy Act can prevent inappropriate disclosure of medical information, it is not clear that this statute actually provides adequate protection for such sensitive information. The NASA Court evidenced a clear disposition to weigh the employer's need for information more heavily than the employee's right to be protected from disclosure. 115 This approach indicates a judicial preference for the needs of employers when those needs conflict with those of employees.

[*184] While Ricci and NASA do not directly address the issue of credit checks, the Equal Employment Opportunity Commission (EEOC), charged by the Civil Rights Act with monitoring and resolving disparate impact cases, 116 has brought two cases alleging disparate impact caused by credit checks in the last two years. 117 In EEOC v. Freeman, 118 the EEOC brought a disparate impact suit on behalf of an African-American woman whose employment application had been rejected on the basis of a credit check. The agency quickly expanded the scope of the suit, identifying other individuals negatively impacted by credit checks and ultimately identifying applicants negatively impacted by criminal record checks as well.

The EEOC alleged an ongoing pattern of discrimination against African-Americans and Hispanics. To identify these multiple plaintiffs, however, the EEOC exceeded the allowable 300-day window specified in Title VII for expanding the class of plaintiffs. The EEOC argued that case law suggested it had the right to search for illegal employment decisions beyond 300 days of filing the original suit, but the court disagreed, opting instead to follow the plain language of Title VII. 119

111 Privacy Act of 1974, Pub. L. No. 93-579, 88 Stat. 1896, 1897 (codified at 5 U.S.C. § 552a (2012)) (giving individuals control over information contained in records and requiring consent for the release of information contained therein).

112 429 U.S. 589 (1977).

113 433 U.S. 425 (1977).

114 Whalen, 429 U.S. at 602; Nixon, 433 U.S. at 458-60.

115 Whalen, 429 U.S. at 602.

116 42 U.S.C. § 2000e-5(a) (2012).

117 EEOC v. Freeman, 2011 WL 337339 (D. Md. Jan. 31, 2011); EEOC v. Kaplan Higher Educ. Corp., 790 F. Supp. 2d 619 (N.D. Ohio 2011).

118 2011 WL 337339 (D. Md. Jan. 31, 2011).

119 Id. at 7; see also EEOC v. Freeman, 2010 WL 1728847, at 1 (D. Md. Apr. 27, 2010) ("Because the plain language of Section 706(e)(1) bars Title VII claims from individuals who fail to timely file charges, the Court concludes that the EEOC cannot bring such claims and is "prompted to paraphrase the deathless dictum of Lord Mildew - if [Congress] did not mean what it said, it should have said so.'") (quoting Canada's Tavern, Inc. v. Town of Glen Echo, 271 A.2d 664, 665 (Md. 1970)).

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In EEOC v. Kaplan Higher Educ. Corp., 120 the EEOC filed another pattern of discrimination case, arguing that Kaplan had engaged in job discrimination since 2008 by using credit checks in employment decisions. 121 The EEOC claimed that this action had a negative impact on African-American and Hispanic job applicants with no job- related justification. In Kaplan, as in Freeman, the EEOC claimed immunity from the 300-day statute of limitations and began accumulating plaintiffs who were victimized by credit checks. The district court rejected the EEOC's contention that the 300-day limit should not apply, emphasizing that the plain language of Section 706 of Title VII makes clear that Congress intended disparate impact claims to be resolved promptly. 122

[*185] In spite of the EEOC's discovery of a pattern of discrimination caused by credit checks, the court interpreted the law in favor of the employers. Although in both cases courts found against the EEOC because the agency had exceeded the time limit for assembling a class of plaintiffs, the problem may actually lie in Title VII itself. This statute allows the same timeframe for proceeding with individual disparate impact suits as it does for pattern of discrimination suits. Section 706 empowers the EEOC to file suit on behalf of individual victims of job discrimination within 300 days of initial notice. 123 Section 707 further enables the EEOC to prosecute cases in which there is a pattern or practice of discrimination, stipulating, however, that the EEOC must file such suits within the same 300- day time frame identified in Section 706. 124 As a result, the EEOC is often frustrated in achieving the goal of uncovering patterns of discrimination, and employers are protected from large and costly judgments. Whether courts more friendly to the EEOC's mission can find ways to hold for the EEOC in these pattern-or-practice cases remains an unanswered question.

Appolon v. University of Miami, 125 a class action suit brought in 2010 by minority job applicants who were allegedly negatively impacted by employer credit checks, may provide an opportunity to reset the balance between protecting minority job applicants and acknowledging the autonomy of employers in a manner that more accurately reflects the mandate of Title VII. However, the judicial climate alluded to above is not conducive to resetting this balance.

Loudy Appolon, an African-American, was offered a job as a Senior Medical Collector at the Miller Medical School, associated with the University of Miami. 126 Appolon received written confirmation of the offer, including a start date and notice that the offer was contingent on a credit check. 127 With the offer in hand, Appolon quit her previous job,

120 EEOC v. Kaplan Higher Educ. Corp., 790 F. Supp. 2d 619 (N.D. Ohio 2011).

121 Id. at 621-22.

122 Id. at 623; see also 42 U.S.C. § 2000e-5(f)(1) (allowing the EEOC to sue on behalf of one or more persons); 42 U.S.C. § 2000e-6(e) (allowing the EEOC to pursue "pattern or practice" suits).

123 Civil Rights Act of 1964, Pub. L. No. 88-352, Title VII, § 706, 78 Stat. 241, 259 (codified as amended at 42 U.S.C. § 2000e- 5(e)(1) (2012)).

124 Civil Rights Act of 1964, Pub. L. No. 88-352, Title VII, § 707, 78 Stat. 241, 261 (codified as amended at 42 U.S.C. § 2000e-6 (2012)).

125 Class Action Complaint, Appolon v. Univ. of Miami, No. 1:10-cv-24166 (S.D. Fla. Nov. 22, 2010), available at http://www.lawyerscommittee.org/ admin/employment_discrimination/documents/files/Appolon-v.-University-of-Miami- Complaint.pdf; see also Kyle Munzenrieder, Class Action Suit Filed Against University of Miami for Racially Discriminatory Hiring Practices, Miami New Times, Nov. 22, 2010, http://blogs.miaminewtimes.com/riptide/ 2010/11/class_action_suit_filed_agains.php.

126 Order on Motion to Dismiss, at 2, Appolon v. Univ. of Miami, No. 1:10-cv-24166 (S.D. Fla. Mar. 14, 2011), available at http://www.workplaceclassaction.com/credit%20check%20blog%20pos t.pdf.

127 Id.

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but was notified a few days before her start date that the University was [*186] rescinding its job offer. 128 A University representative informed Appolon that the cause of the rescission was her credit report. 129 Appolon, a single mother of two children, was subsequently unemployed for four months and sued for job reinstatement and lost wages.

The reality that African-Americans as a class tend to have, on average, lower credit scores than Caucasians should theoretically allow Appolon to make a valid disparate impact claim. However, as in Freeman and Kaplan, the Appolon plaintiffs are experiencing problems attaining class action status. The case was intended to represent a class of African-American and Latino job applicants. One Hispanic woman named as a plaintiff in this suit, however, has already been disqualified from representing the class of Latinos on the grounds that she joined the suit before exhausting her administrative remedies. As a result, the class of Latinos has been dropped from the suit. 130

Part of what makes Appolon a good candidate for restoring the Title VII mandate is that it emphasizes the three principal problems with using credit checks for job applicants. First, the complaint filed in this case alleged, accurately, that there is no research that establishes a link between credit scores and job performance. 131 Second, credit reports often contain errors, including the one used to disqualify Appolon from her job. 132 Finally, minority job applicants as a class have lower credit scores than Caucasians. 133 Because this class action suit highlights the [*187] ways in which credit checks create disparate impact, a victory for the plaintiffs here would raise the profile of this problem and perhaps establish that credit checks do, in fact, have a disproportionate impact on minorities when used in employment decisions.

The judicial climate reflected by this analysis of recent Title VII decisions, however, does not favor the plaintiffs in this lawsuit. As a result, the courts do not necessarily represent the best route for establishing that credit checks in hiring decisions cause disparate impact and thereby violate Title VII.

IV. State Statutory Analysis 134

The case law reviewed in Section IV demonstrates that job applicants or employees are not protected adequately and that credit reports may have a deleterious impact on their potential or continued employment in an already

128 Id.

129 Id.

130 Maria Olivera had no current credit problems but was fired because of a ten-year-old bankruptcy that was on her credit record. However, Olivera had not previously filed a complaint with the EEOC, a requirement for joining this suit. See Gregory v. Ga. Dep't of Human Res., 355 F.3d 1277, 1279 (11th Cir. 2004).

131 Order on Motion to Dismiss at 4, Appolon v. Univ. of Miami, No.1:10-cv-24166 (S.D. Fla. Mar. 14, 2011), available at http://www.workplaceclassaction.com/credit%20check%20blog%20post.pdf (noting that "according to Plaintiffs, credit ratings do not predict workplace crime and there is no correlation between poor credit and job performance").

132 When Appolon checked her credit report, after her job offer was rescinded, she found two old claims that she had actually paid still appeared on her report. Even after Appolon had the credit report corrected, the University of Miami would not hire her. This suit alleged that many credit reports have similar mistakes in them, and using credit reports (whether accurate or inaccurate) in job decisions makes it difficult for people who have encountered financial difficulties to improve their financial situations. Class Action Complaint at 7-8, Appolon v. Univ. of Miami, No. 1:10-cv-24166 (S.D. Fla. Nov. 22, 2010).

133 Appolon explains the reality of low credit scores by identifying the causes of these low scores: African-Americans and Latinos face more "financial events that negatively impact credit history," disproportionate exposure to predatory financial practices, health-related bankruptcies and a higher rate of unemployment. Order on Motion to Dismiss at 3-4, Appolon v. Univ. of Miami, No. 1:10-cv-24166 (S.D. Fla. Mar. 14, 2011).

134 For a more comprehensive discussion of the details of the state statutes mentioned in this section, please see Appendix, p. 194.

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difficult job climate. Nine states 135 have passed statutes that limit the use of credit reports in employment decisions, and thereby add at first glance at least a theoretical layer of protection to vulnerable applicants and employees. Other states are considering legislation. However, an examination of these passed and proposed state statutes reveal serious limitations.

It is key to any statutory remedy to offer attorney's fees and damages. Three states, Illinois, Oregon, and Hawaii, include these provisions. 136 This allows the aggrieved person to retain an attorney and not have to pay out of pocket - something which an unemployed person is unlikely to be able to afford. Yet if persons do not know that the credit check is the reason they have not advanced to an offer, they may never be able to pursue a remedy. Conversely, if the remedy is only the ability to file a complaint with the State's Department of Labor, as in the Connecticut statute, and for the employer to face a $ 300 fine for each infraction, there is no remedy for the person with no job. 137 Similarly, if the remedy, as in Louisiana, is only being given a copy of the credit report and, in rare instances where the information is erroneous and a [*188] "significant material cause" of the adverse decision, allowing for damages and reasonable attorneys' fees, the jobless applicant has no real remedy. 138

Attorneys' fees are a necessary part of a remedy, but not sufficient if the statutory definitions include loopholes that curtail the statute's applicability. For example, Illinois' Employee Credit Privacy Act contains a large undefined exception when credit history is a "bona fide occupational requirement" or BFOR. 139 The statute defines BFOR as the presence of at least one of the following:

(1) State or federal law requires bonding or other security covering an individual holding the position.

(2) The duties of the position include custody of or unsupervised access to cash or marketable assets valued at $ 2,500 or more.

(3) The duties of the position include signatory power over business assets of $ 100 or more per transaction.

(4) The position is a managerial position which involves setting the direction or control of the business.

(5) The position involves access to personal or confidential information, financial information, trade secrets, or State or national security information.

(6) The position meets criteria in administrative rules, if any, that the U.S. Department of Labor or the Illinois Department of Labor has promulgated to establish the circumstances in which a credit history is a bona fide occupational requirement.

(7) The employee's or applicant's credit history is otherwise required by or exempt under federal or State law. 140

While this does offer protection to lower-level employees, it offers little protection to mid-level managers who might typically be asked to have a company credit card. Additionally, many employees who are not very high up the chain of command have signatory power over more than $ 100 of business assets, and thus the employer would be

135 Cal Lab. Code § 1024.5 (2012); Conn. Gen. Stat. § 31-55tt (2011); Or. Rev. Stat. § 659A.320 (2012); Haw. Rev. Stat. § 378- 2 (2012); 820 Ill. Comp. Stat. 70/10 (2012); La. Rev. Stat. Ann. § 9:3571.1(G) (2012); Md. Code Ann., Lab. & Empl. § 3-711(b) (LexisNexis 2012); N.Y. Educ. Law § 652-a(2) (McKinney 2012); Wash. Rev. Code § 19.182.020(2) (2012).

136 820 Ill. Comp. Stat. 70/10 (a) (2012); Or. Rev. Stat. § 659A.885(1) (2012); Haw. Rev. Stat. § 378-5 (2012).

137 Conn. Gen. Stat. § 31-55tt(b) (2011).

138 La. Rev. Stat. Ann. § 9:3571.1(G) (2012).

139 820 Ill. Comp. Stat. 70/10(b) (2012).

140 Id.

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allowed to credit check under the statute. Other state statutes suffer from this [*189] exception, swallowing the protection offered and essentially nullifying the benefit of the statute for most positions. 141

Although many states are considering draft statutes, 142 these problems of exceptions that are too broad, no attorneys' fees, or limited [*190] damages continue to surface in some combination in all of them. Perhaps because Indiana and Michigan were hit especially hard by the 2008 recession, their draft statutes are arguably more sensitive to the role that unexpected credit card and medical debt could have on an unemployed applicant's credit report. 143 Thus, although marginally better, their draft statutes still have problems of broad exceptions. For example, Indiana's draft statute prohibits employers from using credit reports except if the information is "...substantially job related in that the position that the consumer holds or for which the consumer is applying is a position in which the consumer has, or would have access to money, other assets, or confidential information..." 144 Michigan's draft similarly allows credit history if it is a "bona fide occupational requirement." 145

Even if all fifty states pass statutes but they all have these problems, job applicants and employees will be no more protected than at present. What is needed is a state statute that truly offers protection without overly broad exceptions and provides meaningful remedies that induce attorneys to take cases and give applicants the potential for significant financial compensation. There also has to be an incentive for employers to abide by the law and to avoid financial penalties.

V. Proposed Model Statute

The limits of existing and proposed statutes illustrate the problem and highlight the need for a model statute. The critical question in drafting an effective credit check law is how to balance the employer's freedom to seek information deemed relevant to the hiring process with the applicant's interest in being free from prejudice based

141 See, e.g., Or. Rev. Stat. § 659A.320(2) (2012); Haw. Rev. Stat. § 378-3 (2012); Cal Lab. Code § 1024.5 (2012).

142 S. 220, 117th Gen. Assemb., 1st Reg. Sess. (Ind. 2011), available at http://www.in.gov/legislative/bills/2011/IN/IN0220.1.html; H.R. 4363, 96th Leg., Reg. Sess. (Mich. 2011), available at http://www.legislature.mi.gov/ documents/2011-2012/billintroduced/House/pdf/2011-HIB-4363.pdf; S. 1270, 50th Leg., 1st Reg. Sess. (Ariz. 2011), available at http://www.azleg.gov/ legtext/50leg/1r/bills/sb1270s.pdf; H.R. 1987, 88th Gen. Assemb., Reg. Sess., (Ark. 2011), available at http://www.arkleg.state.ar.us/assembly/2011/2011R/ Bills/HB1987.pdf; H.R. 11-1127, 68th Gen. Assemb., 1st Reg. Sess. (Colo. 2011), available at http://www.leg.state.co.us/CLICS/CLICS2011A/csl.nsf/ fsbillcont3/35D46D2DB9E2B5018725780800803E41?Open&file=1127 _01.pdf; B. 38, 19th Period (D.C. 2011), available at http://dcclims1.dccouncil.us/ images/00001/20110331094631.pdfS.B. 42, 151st Gen. Assemb., Reg. Sess. (Ga. 2011), available at http://www1.legis.ga.gov/legis/2011_12/pdf/sb42.pdf; S.B. 1562, 2011 Leg., 113th Reg. Sess. (Fla. 2011), available at http://www.flsenate.gov/Session/Bill/2011/1562/BillText/Filed/P DF; H.B. 144, 2011 Leg., Reg. Sess. (Ky. 2011), available at http://lrc.ky.gov/RECORD/11RS/ HB144/bill.doc; H.B. 3518, 187th Gen. Ct., Reg. Sess. (Mass. 2011), available at http://www.malegislature.gov/Bills/PDF?billId=12920&ge neralCourtId=1; H.B. 807, 96th Gen. Assemb., 1st Reg. Sess. (Mo. 2011), available at http://house.mo.gov/billtracking/bills111/billpdf/intro/HB 0807I.PDF; H.B. 601, 62d Leg., Reg. Sess. (Mont. 2011), available at http://data.opi.mt.gov/bills/ 2011/BillPdf/HB0601.pdf; L.B. 530, 102d Leg., 1st Sess. (Neb. 2011), available at http://nebraskalegislature.gov/FloorDocs/Current/PDF/Intro/LB53 0.pdf; A.B. 331, 76th Leg., Reg. Sess. (Nev. 2011), available at http://www.leg.state.nv.us/ Session/76th2011/Bills/AB/AB331.pdf; A.B. 3238, 214th Leg., Reg. Sess. (N.J. 2010), available at http://www.njleg.state.nj.us/2010/Bills/A3500/ 3238_U1.HTM; S.B. 72, 50th Leg., 1st Sess. (N.M. 2011), available at http://www.nmlegis.gov/Sessions/11%20Regular/bills/senate/ SB0072.pdf; S.B. 6672, 2011-2012 State Assemb., Reg. Sess. (N.Y. 2011), available at http://open.nysenate.gov/legislation/bill/A6672-2011; S.B. 30, 129th Gen. Assemb., Reg. Sess. (Ohio 2011), available at http://www.legislature.state.oh.us/bills.cfm?ID=129_ SB_30; S.B. 1045, 75th Legis. Assemb., 2010 Spec. Sess. (Or. 2010), available at http://www.leg.state.or.us/10ss1/measpdf/sb1000.dir/sb1045.en.pdf; S.B. 128, Gen. Assemb. (Pa. 2011), available at http://www.legis.state.pa.us/CFDOCS/ Legis/PN/Public/btCheck.cfm?txtType=PDF&sessYr=2011&ses sInd=0&billBody=S&billTyp=B&billNbr=0128&pn=014 6; H.B. 3101, Gen. Assemb., 119th Sess. (S.C. 2011), available at http://www.scstatehouse.gov/sess119_2011-2012/bills/3101.htm; H.B. 449, 82d Leg., Reg. Sess. (Tex. 2011), available at http://e-lobbyist.com/gaits/text/119987; H.B. 42 (Vt. 2011), available at http://www.leg.state.vt.us/docs/2012/bills/House/H- 042.pdf; S.B. 246, 2011 Leg., Reg. Sess. (Wis. 2011), available at http://docs.legis.wisconsin.gov/2011/ related/proposals/sb246.pdf; Assemb. B. 350, 2011 Leg., Reg. Sess. (Wis. 2011), available at https://docs.legis.wisconsin.gov/2011/related/proposals/ ab350.pdf.

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upon bad credit history given how many individuals face this problem in this economy. Authorizing a credit report for a position requiring a security clearance is easily understood - bad credit, if undisclosed, positions a future employee to be vulnerable to enticements to trade classified information for needed cash. However, the more difficult question lies in determining the level of responsibility at which a credit check ceases to be a relevant inquiry as part of the employment process.

[*191] The expense of conducting lengthy and thorough background checks that include credit reports may mean that employers conduct such background checks only for applicants seeking sensitive, high-level positions. 146 As a practical matter, however, once a final candidate is identified, employers are already sufficiently invested in the process that the expense of a credit check may be incurred with little additional thought.

With the aforementioned concerns in mind, we propose our own model state credit check statute based on the following criteria:

1. Tracking the definition of "employer" found in Title VII of the Civil Rights Act, the statute should apply to individuals or firms employing fifteen or more persons on any given working day, in each of twenty or more calendar weeks in the current or preceding calendar year, or any agent of such a person. 147

2. The statute should generally prohibit credit checks in the employment context (i.e., for both applicants and employees), but may enumerate specific exceptions, including:

a. High-ranking policy-making executives;

b. Circumstances where there is genuine suspicion of wrongdoing and a credit check would help to confirm the suspected behavior or vindicate the applicant/employee. A standard less than probable cause but more than a mere blanket interest in searching all applicants would be adequate;

[*192] c. Applicants/employees who may authorize company expenditures of $ 25,000 or more in one transaction, or who have signatory authority over more than $ 100,000 (other than salaries or collections) in any calendar year;

d. Any person for whom a credit check is otherwise required by law.

143 S. 220, 117th Gen. Assemb., 1st Reg. Sess. (Ind. 2011), available at http://www.in.gov/legislative/bills/2011/IN/IN0220.1.html; H.R. 4363, 96th Leg., Reg. Sess. (Mich. 2011), available at http://www.legislature.mi.gov/ documents/2011-2012/billintroduced/House/pdf/2011-HIB-4363.pdf.

144 S. 220, 117th Gen. Assemb., 1st Reg. Sess. (Ind. 2011), available at http://www.in.gov/legislative/bills/2011/IN/IN0220.1.html.

145 H.R. 4363, 96th Leg., Reg. Sess. (Mich. 2011), available at http://www.legislature.mi.gov/documents/2011- 2012/billintroduced/House/pdf/ 2011-HIB-4363.pdf.

146 But cf. Jennifer Preston, Employers Scour Web Before Offering Jobs: Access to Information Doesn't Always Mean It Can Be Used in Hiring, Int'l Herald Trib., July 21, 2011, at 15 (discussing a new company, Social Intelligence, that offers web search for companies looking for all online information about a candidate).

147 Under Title VII of the Civil Rights Act, the "employer" is defined as "a person engaged in an industry affecting commerce who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year, and any agent of such a person, but such term does not include (1) the United States, a corporation wholly owned by the Government of the United States, an Indian tribe, or any department or agency of the District of Columbia subject by statute to procedures of the competitive service (as defined in section 2102 of Title 5 [of the United States Code]), or (2) a bona fide private membership club (other than a labor organization) which is exempt from taxation under section 501(c) of Title 26 [the Internal Revenue Code of 1986], except that during the first year after March 24, 1972 [the date of enactment of the Equal Employment Opportunity Act of 1972], persons having fewer than twenty-five employees (and their agents) shall not be considered employers." 42 U.S.C. § 2000e(b) (2012).

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3. If applicants or employees are subject to credit checks, they are entitled to notice beforehand.

4. In the event of a violation, the applicant or employee has a civil right of action with two times annual pay plus attorneys' fees at trial and on appeal.

None of the foregoing should be read to prohibit employers from checking activity of employees or applicants available on social media websites or other similar public fora. 148

By eliminating the managerial category, setting a monetary threshold, and specifically outlining a need for a suspicion of wrongdoing to dip below the thresholds, our proposed schema incorporates a higher degree of certainty about the group to whom the statute applies. The exception for small businesses recognizes that such organizations typically have fewer available resources with which to police wrongdoing, and should not be held to the same standard as larger firms.

By setting a dollar threshold, regardless of the type of institution, the question of what is "business-related" need not be answered, rendering the regulatory scheme more predictable. Additionally, the dollar amount threshold would have the positive effect of blunting the impact of credit checks on certain minority groups that tend to have worse credit histories, by placing more onerous restrictions on the use of credit reports across the board.

[*193]

Conclusion

While maintaining business flexibility and freedom are important values in a capitalist society, they are not the only values the law should be concerned with protecting. We have argued that a federal credit check statute is important for uniformity in the business environment, similar to the federal employment discrimination laws. Such a law is particularly important in the post-recession era, where large portions of the population are burdened by long-term unemployment, underwater mortgages, and non-performing loans.

As long as the correlation between credit history and the likelihood of future criminal behavior is so contested, the government should protect individuals from being punished for medical or other debt during a prolonged period of 9% unemployment. 149 Unfortunately, it seems unlikely that Congress will be able to address this issue, given the polarization and discord of the post-recession political landscape. 150 Thus, it is more likely that remedies will continue to be enacted at the state level, resulting in further confusion and inconsistency in our nation's policy on credit checks. However, if a model state statute like the one outlined in Section VI were embraced by many states, there would be uniformity and predictability akin to what was accomplished by the multistate adoption of versions of the Uniform Commercial Code. 151

[*194]

148 But cf. Cal. Labor Code § 980 (West 2013) ("Employer Use of Social Media")(prohibiting an employer from requiring an employee or applicant to "disclose a username or password for the purpose of accessing personal social media,...access personal social media in the presence of the employer, [or]...divulge any personal social media… ." Under the statute, an employer retains the ability to "terminate or otherwise take an adverse action against an employee or applicant if otherwise permitted by law." Presumably, then, if an employee was using social media to harass another employee, the employer would be allowed to access social media to investigate the complaint or to prevent harassment.).

149 Another hurdle job applicants face is the prejudice that people who are unemployed are not good workers. New Jersey recently prohibited the exclusion of unemployed job applicants. See, e.g., Alexandra Frean, Looking for a Job? Don't Bother If You Are Unemployed, Times (London), July 28, 2011 (noting that federal legislation is being proposed to prohibit screening out unemployed job applicants, and that New York and Michigan appear interested in following suit).

150 For a discussion of federal gridlock, see Chris Cillizza, Worst Year: Congress, Wash. Post, Dec. 18, 2012, at B4.

151 See generally Massachusetts' Uniform Commercial Code, Mass. Gen. Laws Ch. 106, § 1-101 (2012) (as an example of how one state has incorporated the Uniform Commercial Code into state law).

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Appendix

A. State Statutes Offering Some Protection with Meaningful Remedies

1. Illinois

The Employee Credit Privacy Act 152 was passed by the Illinois state legislature in 2010. At first glance, the statute appears to grant broad employee protection by stating that "employment based on credit history or credit report is not permitted." The statute makes it illegal for an employer "to inquire about an applicant's or employee's credit history" or to even "obtain a … credit history." 153 Not surprisingly, however, the statute contains a large undefined exception when credit history is a "bona fide occupational requirement" (BFOR). The statute defines BFOR as the presence of at least one of the following:

(1) State or federal law requires bonding or other security covering an individual holding the position.

(2) The duties of the position include custody of or unsupervised access to cash or marketable assets valued at $ 2,500 or more.

(3) The duties of the position include signatory power over business assets of $ 100 or more per transaction.

(4) The position is a managerial position which involves setting the direction or control of the business.

(5) The position involves access to personal or confidential information, financial information, trade secrets, or State or national security information.

(6) The position meets criteria in administrative rules, if any, that the U.S. Department of Labor or the Illinois Department of Labor has promulgated to establish the circumstances in which a credit history is a bona fide occupational requirement.

(7) The employee's or applicant's credit history is otherwise required by or exempt under federal or State law. 154

[*195] The statute prohibits employers from asking applicants or employees to waive their rights under the Act. Furthermore, disclosure by the employer that it is seeking a credit report does not remedy any violation. There is a provision for civil action to obtain "injunctive relief or damages, or both," 155 as well as reasonable costs and attorneys' fees. The statute permits an employer to do a background check so long as it does not violate the Illinois statute or the FCRA.

While the Illinois statute offers protection to lower-level employees, it offers little protection to mid-level managers who might typically be asked to have a company credit card. Additionally, many employees who are not very high up the chain of command have signatory power over more than a $ 100 of business assets, and thus the employer would be allowed to conduct credit check under the statute. The Illinois statute makes no provision for criminal sanctions.

2. Oregon

152 820 Ill. Comp. Stat. 70/10 (2012).

153 820 Ill. Comp. Stat. 70/10(a) (2012).

154 820 Ill. Comp. Stat. 70/10(b) (2012).

155 820 Ill. Comp. Stat. 70/25(a) (2012).

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In 2010, Oregon passed a credit check law 156 limiting the use of credit history in the context of employment decisions. The Oregon statute is similar to the Illinois statute in its general prohibitions, but its exceptions are somewhat broader, giving less protection to employees or applicants.

Under the Oregon statute, the prohibition on credit checks does not apply to:

(a) Employers that are federally insured banks or credit unions;

(b) Employers that are required by state or federal law to use individual credit history for employment purposes;

(c) … The employment of a public safety officer …

(d) The obtainment or use by an employer of information in the credit history of an applicant or employee because the information is substantially job-related and the employer's reasons for the use of such information are disclosed to the employee or prospective employee in writing. 157

These exceptions allow credit information to be used in employment decisions if it is "job-related," but the statute fails to provide any [*196] guidance as to what constitutes a "job-related" purpose, leaving the door open for broad employer discretion. The statute authorizes civil actions with provisions for punitive damages, equitable relief, back pay for a two-year period, and attorneys' fees at trial and on appeal. 158 The remedies provided in the Oregon statute offer some compensation if the employee or applicant receives notice that a credit report was used. If, however, an applicant does not receive notice of the use of a credit check, he or she will be unable to take advantage of the remedies available in the statute.

3. Hawaii

In 2009, the Hawaii state legislature amended its employment discrimination law by adding a section that states:

It is an unlawful discriminatory practice:

(8) For any employer to refuse to hire or employ or to bar or discharge from employment or otherwise to discriminate against any individual in compensation or terms, conditions, or privileges of employment of any individual because of the individual's credit history or credit report, unless the information in the individual's credit history or report directly relates to a bona fide occupational qualification under 378 3(2). 159

The law goes on to state:

Nothing in this part shall be deemed to … prohibit or prevent the establishment and maintenance of bona fide occupational qualifications reasonably necessary to the normal operation of a particular business or enterprise, and that have a substantial relationship to the functions and responsibilities of prospective or continued employment. 160

The Hawaii statute, though somewhat vague, leaves the door open for employers to require credit checks for managers with budgetary authority. Presumably, a lower-level employee could not be checked unless there was some suspicion of theft. As far as remedies are concerned, the Hawaii statute includes back pay for up to two

156 Or. Rev. Stat. § 659A.320 (2012).

157 Or. Rev. Stat. § 659A.320(2) (2012).

158 Or. Rev. Stat. § 659A.885(1) (2012).

159 Haw. Rev. Stat. § 378-2(8) (2012).

160 Haw. Rev. Stat. § 378-3 (2012).

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years, [*197] attorneys' fees, and the possibility that the Hawaii Civil Rights Commission may file a complaint under Ch. 368. 161

B. State Statutes with Minimal Protection and Minimal Remedies

1. California

The California credit check statute, A.B. 22, amended Chapter 724 of the California Code and was passed and signed into law by Governor Brown after a number of failed attempts to pass such a bill under former Governor Schwarzenegger. The amendment adds Section 1024.5, which requires credit reports to be related to job necessity. 162 The California statute appears to allow the use of credit reports in connection with any position that includes access to money, assets, or information, or where otherwise reasonable.

The statute does not quantify the amount of money or assets to which the employee or applicant must have access, nor does it explicitly define "managerial position." The generality of the statutory language results in exempting a large number of persons from its prohibitions. For example, if a person is authorized to transfer money on behalf of the employer and also supervises individuals, he or she would come under the statutory exceptions. 163

2. Connecticut

In 2011, Connecticut enacted Senate Bill 361, "An Act Preventing the Use of Credit Scores by Certain Employers in Hiring Decisions," which states:

No employer or employer's agent, representative or designee may require an employee or prospective employee to consent to a request for a credit report that contains information about the employee's or prospective employee's credit score, credit account balances, payment history, savings or checking account balances or savings or checking account numbers as a condition of employment unless (1) such employer is a financial institution, (2) such report is required by law, (3) the employer reasonably believes that the employee has engaged in specific activity that constitutes a violation of the law related to the employee's employment, or (4) such report is substantially related to [*198] the employee's current or potential job or the employer has a bona fide purpose for requesting or using information in the credit report that is substantially job-related and is disclosed in writing to the employee or applicant. 164

"Employer" is defined by the statute as "any person engaged in business who has one or more employees, including the state or any political subdivision of the state." 165 The statute contemplated a broad definition of the term "employer," but exempts financial institutions. Like most other credit check statutes, the Connecticut statute contains exceptions. These allow an employer to utilize a credit report if:

(1) Such employer is a financial institution, (2) such report is required by law, (3) the employer reasonably believes that the employee has engaged in specific activity that constitutes a violation of the law related to the employee's employment, or (4) such report is substantially related to the employee's current or potential job or the employer has a bona fide purpose for requesting or using information in the credit report that is substantially job-related and is disclosed in writing to the employee or applicant. 166

161 Haw. Rev. Stat. § 378-5 (2012).

162 Cal Lab. Code § 1024.5 (2012).

163 Id.

164 Conn. Gen. Stat. § 31-55tt(b) (2011).

165 Id. § 31-55tt(a)(2).

166 Id. § 31-55tt(b).

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If an employee suspects a violation of this provision, the statute allows them to file a complaint with the Labor Commissioner, who then conducts a hearing to determine if a violation in fact occurred. The penalties for violations under the Connecticut statute are de minimis, with employers liable to the Labor Department for civil penalties of merely $ 300 for each inquiry made in violation of subsection (b). 167 It is interesting to note that proposed language mandating that the penalty be paid to the aggrieved employee or applicant was actually deleted from the final version of the bill. Additionally, the bill does not appear to contain a provision for attorneys' fees, nor any other civil remedy for the benefit of the employee, other than a potential injunction from the Labor Department ordering the employer to refrain from the conduct in question.

3. Louisiana

The Louisiana credit check statute does not meaningfully restrict the use of credit reports in employment decisions, but rather requires only that a consumer who is denied employment based on information [*199] contained in such a report be provided with a copy of the report. If the information contained in the report is erroneous, the applicant is entitled to "actual damages, plus reasonable attorney fees and court costs" if the information was a "significant material cause" of the decision, and the employer failed to use "ordinary care in obtaining or amassing the information or failed to exercise due diligence in discovering such error." 168 The Louisiana statute places the standard for the remedy so high that most errors are simply not actionable. Thus, the statute provides no meaningful protection to applicants or employees who are denied or discharged from positions on account of a credit report.

4. Maryland

Maryland passed the Job Applicant Fairness Act in 2011, which prohibits the use of credit checks to "deny employment," "discharge" or "determine compensation, terms, conditions, or privileges of employment" except where the credit report is used for a purpose other than those listed above, or there is a "bona fide purpose" that is "substantially job-related" and "disclosed in writing to the employee or applicant." 169 The statute goes on to define "job-related" as follows:

(i) … managerial and involves setting the direction or control of a business …

(ii) involves access to personal information … of a customer, employee, or employer, except for personal information customarily provided in a retail transaction;

(iii) involves a fiduciary responsibility to the employer, including the authority to issue payments, collect debts, transfer money, or enter into contracts;

(iv) is provided an expense account or a corporate debit or credit card; or

(v) has access to [trade secrets or] other confidential business information. 170

The remedies allow for a complaint to the Commissioner of Labor and Employment, who can resolve the complaint and may assess a penalty of $ 500 for first time violations and $ 2500 for a repeat violations. 171 The employer may ask for a de novo hearing and there is a right to enforcement of the penalty in court. Although the definition of [*200] "job-related" is more explicitly defined than it is in other states, it remains quite broad.

167 Id. § 31-55tt(c).

168 La. Rev. Stat. Ann. § 9:3571.1(G) (2012).

169 Md. Code Ann., Lab. & Empl. § 3-711(b) (LexisNexis 2012).

170 Id. § 3-711(c)(2).

171 Id. § 3.711(d)(4).

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5. New York

New York passed a very limited credit check statute in 2011, which amended the state's Human Rights Law. The amendment provides for the collection of "security clearance information, including criminal background and credit information" of employees of the Higher Education Services Corporation. 172 The law applies to both current and prospective employees.

6. Washington

Washington passed a statute in 2007 that limits the use of "consumer reports" for employment purposes. The statute is limited to persons who are not employees at the time the report is "procured or caused to be procured." Thus, existing employees are not covered. The statute states in relevant part:

Subject to (c) of this subsection, a person may not procure a consumer report, or cause a consumer report to be procured, for employment purposes with respect to any consumer who is not an employee at the time the report is procured or caused to be procured unless [there is disclosure in writing or authorization from the consumer]. 173

With respect to existing employees, there need only be disclosure "that consumer reports may be used for employment purposes" in employee manuals, unless there is some specific reason to believe that the employee has violated the law. 174 If the employer seeks a credit report for an applicant or employee, the inquiry must be "substantially job related" and disclosed to the employee or applicant in writing. 175 The statute also provides for administrative procedures before an adverse action can be taken in court. However, in practice, the applicant or employee may never know if there has actually been a violation of the statute, and thus, enforcement is limited.

The Washington statute does not allow employers to seek credit reports for persons who are not existing employees unless "a clear and conspicuous disclosure has been made in writing to the consumer before the report is procured or caused to be procured that a consumer report [*201] may be obtained for purposes of considering the consumer for employment. The disclosure may be contained in employment application materials." 176 Alternatively, the consumer could "authorize the Procurement." 177 For existing employees, it is sufficient to provide constructive notice through an employee manual. 178

Although a credit report cannot be requested unless the information is "job related and the employer's reasons for the use of such information are disclosed to the consumer in writing[,]" 179 the statute provides no definition of the term "job-related" itself. The statute contains additional provisions allowing credit reports when required by law. 180 Additionally, there is a procedural requirement that before any "adverse action" can be taken based on the report, the employee or applicant must be informed of the report's contents, made aware of his or her rights, and be given the opportunity to respond. 181 No other specialized remedies are provided.

172 N.Y. Educ. Law § 652-a(2) (McKinney 2012).

173 Wash. Rev. Code § 19.182.020(2) (2012).

174 Id. § 19.182.020(2)(b).

175 Id. § 19.182.020(2)(c).

176 Id. § 19.182.020(2)(a)(i).

177 Id. § 19.182.020(2)(a)(ii).

178 Id. § 19.182.020(2)(b).

179 Id. § 19.182.020(2)(c)(i).

180 Id. § 19.182.020(2)(c)(ii).

181 Id. § 19.182.020(2)(d).

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C. Proposed Statutes: Some Protection, Meaningful Remedies

1. Indiana

Indiana Senate Bill number 220, currently before the Committee on Pensions and Labor, prohibits an employer from using a consumer report for employment purposes, unless the information is "substantially job related in that the position that the consumer holds or for which the consumer is applying is a position in which the consumer has, or would have, access to money, other assets, or confidential information[,]" 182 and any of the following contexts apply:

(A) A managerial position.

(B) A position with the office of the attorney general.

(C) A position with a city, town, or county.

(D) Any law enforcement position.

[*202] (E) A position for which the information used from the consumer report is required to be:

(i) disclosed by law; or

(ii) obtained by the employer under state or federal law. 183

The proposed bill allows employees to bring a civil action for actual damages, or for punitive damages in the case of willful violation. Court costs and reasonable attorneys' fees are provided to the prevailing consumer. "Employer" is defined as "any individual or type of organization, including the state and all its political subdivisions, that has in its employ one (1) or more individuals." 184 Indiana does not provide an exemption for either financial institutions or small businesses. With the inclusion of attorneys' fees and punitive damages, the proposed statute provides employees and applicants with the most protection and potential redress of any of the statutes discussed.

2. Michigan

Michigan's proposed credit check law, the Job Applicant Credit Privacy Act, 185 would prohibit an employer - defined as an individual or entity that permits one or more individuals to work - from "[failing] or refusing to hire or to recruit an individual for employment because of the individual's credit history [or to] inquire about job applicant's or potential job applicant's credit history." 186 The prohibition in the statute does not apply, however, "if a good credit history is an established bona fide occupational requirement of the particular position or employment classification." 187 The statute states that a bona fide job qualification is presumed in any of the following situations: "An employee of the state or nationally chartered bank … or subsidiary; an employee of the state or federally chartered savings and loan, savings bank, or credit union … An employee of a casino; an employee of an insurer … ." 188

182 S. 220, 117th Gen. Assemb., 1st Reg. Sess. (Ind. 2011), available at http://www.in.gov/legislative/bills/2011/IN/IN0220.1.html.

183 Id.

184 Ind. Code § 22-8-1.1-1 (2012).

185 H.R. 4363, 96th Leg., Reg. Sess. (Mich. 2011), available at http://www.legislature.mi.gov/documents/2011- 2012/billintroduced/House/pdf/2011-HIB-4363.pdf.

186 Id.

187 Id.

188 Id.

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Additionally, employers would not be permitted to demand that an individual waive or limit any of the protections afforded by the proposed law. Any agreement attempting to do so would be unenforceable. 189 The [*203] proposed statute would also allow aggrieved individuals to bring a civil suit in order to obtain damages or injunctive relief, with costs and reasonable attorneys' fees if they prevail. 190 It is important to note that the attorneys' fees are only available to a plaintiff in an action, not merely to the prevailing party.

D. Proposed Statutes: Minimal Protection, Minimal Remedies

1. Arizona

The Arizona legislature proposed a credit check statute in 2011 as an amendment to a pre-existing transportation statute. 191 The Arizona statute sanctions the use of credit reports generally, rather than prohibiting them as most other state statutes do:

The director may obtain consumer report information regarding applicants for the purpose of hiring personnel. Information obtained may only be used to determine the suitability of the applicant for positions involving fiduciary or financial responsibilities, the issuance of driver licenses or other personal identification documents or access highly confidential information. 192

Under the proposed law, the applicant's credit report may only be used to disqualify an applicant if it has a "reasonable relationship to the functions of the position." 193 This revision of the pre-existing statute, however, lacks any guidance as to the definition of "a reasonable relationship to the functions of the position." It also does not list any specific penalties for violation of the statute.

2. Arkansas

Arkansas attempted to pass the Employee Credit Privacy Act in early 2011, also as an amendment to a pre- existing law. Unlike the proposed Arizona statute, the Arkansas bill is written as a prohibition against the use of credit reports. Section 11-3-503 states:

Except as provided in subsection (b) … an employer shall not fail or refuse to hire, recruit, discharge, or otherwise discriminate against a job applicant or an employee with respect to employment, compensation, or [*204] a term, condition, or privilege of employment, because of the individual's credit history or credit report. 194

It is also illegal to "inquire about the credit history or credit report of an employee or job applicant; or order or obtain a credit report of an employee or job applicant." 195

The bill defines "credit report" as "any written, oral or other communication of information by a consumer reporting agency that bears on a consumer's creditworthiness, credit standing, credit capacity, or credit history." 196 The proposed statute's exceptions are as broad as its definition of credit report. The act defines "employer" to exclude

189 Id.

190 Id.

191 S. 1270, 50th Leg., 1st Reg. Sess. (Ariz. 2011), available at http://www.azleg.gov/legtext/50leg/1r/bills/sb1270s.pdf.

192 Id.

193 Id.

194 H.R. 1987, 88th Gen. Assemb., Reg. Sess., (Ark. 2011), available at http://www.arkleg.state.ar.us/assembly/2011/2011R/Bills/HB1987. pdf.

195 Id.

196 Id.

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"[a] bank holding company, financial holding company, bank, savings bank, savings and loan association, credit union, or trust company, or any subsidiary or affiliation thereof ...." 197 Insurance companies or surety companies and their employees or agents, state law enforcement or investigative units, state or local government agencies and their employees, as well as employers characterized as debt collectors, are also excluded from the definition. 198

The proposed statute permits the use of a credit report provided the employer can establish that it is a bona fide requirement of a particular position. 199 The bill provides that credit history will be considered a "bona fide occupational requirement" (BFOR) when:

A) State or Federal law requires bonding or other security covering an employee holding the position; B) The duties of the position include custody of or unsupervised access to cash or marketable assets valued at two thousand five hundred dollars ($ 2,500) or more; C) The duties of the position include signatory power over business assets of one hundred dollars ($ 100) or more; D) The position is a managerial position that involves setting the direction or control of the business; E) The position involves access to personal or confidential information, financial information, trade secrets, or state or national security information … . 200

[*205] Subsection 11-3-505 of the bill prohibits employers from requiring that a job applicant or employee waive any rights under the statute. Any such agreement "by a job applicant or an employee to waive any right under this subchapter is invalid and unenforceable." 201 Available remedies include bringing a civil action to obtain injunctive relief, damages, or both. 202

Although the proposed statute is rather detailed and appears to grant great protection to employees and applicants, the broadly written exceptions allow employers in most situations to be able to obtain a credit report. The bill died in House committee in April 2011.

3. Colorado

Colorado's proposed credit check law, an amendment to the Employer Use of Consumer Credit Information, 203 defines consumer credit information as any "written, oral or other communication of information … bearing on a consumer's creditworthiness, credit standing, or credit capacity." "Consumer credit information" also includes a credit score. 204 The proposed statute prohibits the use of credit reports, with a number of exceptions.

The proposed law only allows an employer to utilize a consumer credit report if:

The information is substantially job-related, meaning that the position of the person for whom the information is sought has access to money, other assets, or trade secrets or other confidential information; or (b) The position of the person for whom the report is sought is any of the following: (I) A managerial position; (II) The position of the

197 Id.

198 Id.

199 Id.

200 Id.

201 Id.

202 Id.

203 H.R. 11-1127, 68th Gen. Assemb., 1st Reg. Sess. (Colo. 2011), available at http://www.leg.state.co.us/CLICS/CLICS2011A/csl.nsf/fsbillcont3 /35D46D2DB9E2B5018725780800803E41?Open&file=1127_01.pdf.

204 Id.

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department of law; (III) A sworn peace officer or other law enforcement position; or (IV) A position for which the information is required to be disclosed by law or to be obtained by the employer. 205

Additionally, if an employer relies on a credit report to take adverse action against an employee or applicant, the individual must be notified. If the employee is terminated or the applicant denied a position, the employer must disclose the particular information upon which the [*206] decision was based. 206 The proposed law does not exclude financial institutions from the definition of "employer," but allows credit reports to be obtained if a managerial position - not defined in the statute - is at stake.

The proposed law allows an aggrieved party to bring a civil action to obtain injunctive relief, damages, or both. Courts are empowered to award reasonable costs and attorneys' fees to the prevailing party. 207 A close reading of the remedies provision suggests the possibility that if the employer prevails in a civil suit, the employee or applicant must bear the brunt of his own failed suit, thus potentially chilling the Act's enforceability. The bill was postponed indefinitely in the Veterans and Military Affairs House Committee in February of 2011.

4. District of Columbia

The District of Columbia recently attempted to enact a bill entitled the Equal Access to Employment for All Act of 2011. 208 The proposed law specifically prohibits the use of credit checks for the purpose of employment decisions. 209 The bill goes on to further prohibit an employer from attempting to obtain consent from an applicant or employee in order to obtain a credit report. Despite the broad prohibitory language of the bill, however, employers are permitted to obtain a credit report in the following situations:

(1) When the consumer applies for, or currently holds, employment that requires national security or FDIC clearance, 2) when the consumer applies for, or currently holds, employment with a State or local government agency which otherwise requires use of a consumer report, 3) when a consumer applies for, or currently holds, a supervisory, managerial, professional, or executive position at a financial institution, 4) when otherwise required by the law. 210

The proposed law does not list any penalties for violation of the statute, nor does it indicate whether there would be any attorneys' fees in the event of a civil action brought by the employee or applicant. As of this writing, no progress has been made on the proposed law since a public hearing held in November of 2011.

[*207]

5. Georgia

Georgia recently proposed a bill entitled General Provisions regarding Labor and Industrial Relations, which states:

No employer … may request that an employee … consent to a request for a credit report that contains information about the employee's … credit score, credit account balances, payment history, savings or checking account balances, or savings or checking account numbers as a condition of employment … ." 211

205 Id.

206 Id.

207 Id.

208 B. 38, 19th Period (D.C. 2011), available at http://dcclims1.dccouncil.us/ images/00001/20110331094631.pdf.

209 Id.

210 Id.

211 S.B. 42, 151st Gen. Assemb., Reg. Sess. (Ga. 2011), available at http://www1.legis.ga.gov/legis/2011_12/pdf/sb42.pdf.

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Like many of the other proposed bills, the Georgia bill contains broad exceptions such as "the information contained in such report is a bona fide occupational qualification; such credit report is otherwise required by law; or the employer reasonably believes that the employee has engaged in specific activity that constitutes a violation of the law." 212 Federally insured banks and credit unions, employers required by state or federal law to use individual credit histories for employment purposes, and business with under fifteen employees are also exempted. 213

Under the proposed Georgia bill, a "bona fide occupational qualification" would be found where:

The information contained in the credit report is related to the position for which the employee or prospective employee who is the subject of the report is being evaluated, because the position: (A) Is a managerial position which involves setting the direction or control of the business; (B) Involves access to customers', employees', or the employers' personal or financial information other than information customarily provided in a retail transaction; (C) involves a fiduciary responsibility to the employer including, but not limited to, the authority to issue payments, transfer money, or enter into contracts; or (D) provides an expense account. 214

Unfortunately, the fines for violations of the proposed law are minimal, 215 thereby depriving the statute of any real teeth. The minimal [*208] civil penalties notwithstanding, Georgia remains the only state that has proposed making violation of a credit check law a criminal offense, thus relieving individual employees of the financial burden of enforcement. This bill was referred to the Georgia Committee on Insurance and Labor in February 2011.

6. Florida

In 2011, Florida attempted to enact Senate Bill 1562. Under the proposed statute:

(1) Except where required by law it is an improper employment practice for an employer to directly or indirectly use a job applicant's personal credit history as a hiring criterion. (2) … an employer may request a credit history background check as part of the application process if such history is shown to be directly related to the position sought by the applicant. However, such history may not be the determining factor in whether the applicant is ultimately hired to position sought. 216

The bill does not define "employer" and appears directed towards the protection of applicants rather than existing employees. Despite the statute's broad applicability to employers generally, it provides no guidance as to the connection required between the position in question and the credit report. Such a lack of clarity may offer employers too much latitude to request credit reports at will. The bill died in committee on May 7, 2011.

7. Kentucky

Kentucky's proposed credit check law, House Bill 144, states:

It is an unlawful practice for an employer … (d) to fail or refuse to hire, to discharge, or otherwise disadvantage any individual with respect to compensation, terms, or conditions of employment based on the individual's credit history or credit score, unless the individual's credit history or credit score is directly, materially, and substantially related to the duties and performance of the [*209] employee or the overall operation of the employer's business. 217

212 Id.

213 Id.

214 Id.

215 Id. (providing fines ranging from $ 200 to $ 400).

216 S.B. 1562, 2011 Leg., 113th Reg. Sess. (Fla. 2011), available at http://www.flsenate.gov/Session/Bill/2011/1562/BillText/Filed/P DF.

217 H.B. 144, 2011 Leg., Reg. Sess. (Ky. 2011), available at http://lrc.ky.gov/ RECORD/11RS/HB144/bill.doc.

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The Kentucky bill does not define "substantially" or "materially related." Financial institutions are not exempted from the proposed law. No specific penalties are provided for violation of the statute.

8. Massachusetts

Massachusetts' proposed credit check statute makes it illegal

For an employer to refuse to hire or employ or to bar or discharge from employment, or otherwise to discriminate against an individual in compensation or in the terms, conditions or privileges of employment … because of the individuals credit history of credit report … . 218

The proposed law allows a credit history or credit report to be used when directly related to a bona fide occupational qualification, defined as one of the following:

(i) State or federal law requires bonding or other security covering an individual holding the position; (ii) the duties of the position include custody of or unsupervised access to cash or marketable assets valued at $ 2,500 or more; (iii) the duties of the position include signatory power over business assets of $ 100 or more per transaction; (iv) the position is a managerial position which involves setting the direction or control of the business; (v) the position involves access to personal or confidential information, financial information, trade secrets, or commonwealth or national security information; … (vii) the position meets criteria in regulations promulgated by the executive office of labor and workforce development to establish the circumstances in which a credit history is a bona fide occupational requirement; (viii) the employee's or applicant's credit history is otherwise required by or exempt under federal law or any general or special law. 219

[*210] The proposed law also leaves to the Executive Office of Labor and Workforce the duty of promulgating penalties associated with violations of the statute. This bill is currently referred to the Massachusetts House Committee on the Judiciary.

9. Missouri

In 2011, the Missouri House of Representatives attempted to pass a bill making it an "improper employment practice for an employer to refuse to hire, or to discharge, an individual, or otherwise disadvantage the individual … based on the individual's credit score or credit history." 220 The bill allows for the use of credit checks if the "credit score or credit history is directly, materially, and substantially related to the duties and performance of the employee or the overall operation of the employer's business." 221 The bill does not define "materially," "substantially related," or what constitutes relevance to the "overall operation" of the employer's business. Although no specific penalties for violation of the law are provided in the bill, improper employment practices are governed generally by Chapter 290 of the Missouri code. Enforcement of Chapter 290 is overseen by the Department of Labor and Industries.

10. Montana

Under Montana's proposed credit check statute, a consumer report may not be used for employment purposes unless the report is being used "to investigate a potential or current employee who may be in a position: for which

218 H.B. 3518, 187th Gen. Ct., Reg. Sess. (Mass. 2011), available at http://www.malegislature.gov/Bills/PDF?billId=12920&ge neralCourtId=1.

219 Id.

220 H.B. 807, 96th Gen. Assemb., 1st Reg. Sess. (Mo. 2011), available at http://house.mo.gov/billtracking/bills111/billpdf/intro/HB 0807I.PDF.

221 Id.

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credit is issued in goods, a line of credit is provided, or a fiduciary responsibility is owed to the employer … ." 222 The statute defines "consumer report" as "any written, oral, or other communication of any information by a consumer reporting agency," 223 but does little to define "fiduciary responsibility." Violation of the proposed statute is a criminal misdemeanor. The monetary penalty for the first offense is $ 250, and not more than $ 500 for subsequent offenses. The statute includes a disclosure requirement, stating:

Whenever information contained in a consumer report from a consumer reporting agency is the reason for a denial involving a consumer for employment purposes, [*211] the user of the consumer report shall advise the consumer against whom the adverse action has been taken and supply the name and address of the consumer reporting agency making the report. 224

11. Nebraska

Nebraska's proposed credit check law is entitled the Employee Credit Privacy Act, 225 and states in relevant part that:

Except as otherwise provided in subsection (2) of this section, an employer shall not do any of the following: (a) fail or refuse to hire or recruit, discharge, or otherwise discriminate against an individual with respect to employment, compensation, or a term, condition, or privilege of employment because of the individual's credit history or credit report. 226

The act defines "credit report" to include "any written or other communication of any information by a consumer reporting agency that bears on a consumer's credit worthiness, credit standing, credit capacity, or credit history." 227 "Employer" is defined as:

An individual or entity that permits one or more individuals to work or that accepts applications for employment or is an agent of an employer [except that the term "employer" does not include] any bank holding company, financial holding company, bank, savings bank, savings and loan association, credit union, or trust company, or any subsidiary or affiliate thereof … [or] any company authorized to engage in any kind of insurance or surety business … . 228

Under the proposed law, employers may use a credit report if it can be shown that a bona fide occupational requirement applies. A bona fide occupational requirement encompasses at least one of the following circumstances:

(A) State or federal law requires bonding or other security covering an individual holding the position;

[*212] (B) The duties of the position include signatory power over marketable assets of one hundred dollars or more per transaction;

(C) The position is a managerial position which involves setting the direction or control of the business; or

222 H.B. 601, 62d Leg., Reg. Sess. (Mont. 2011), available at http://data.opi.mt.gov/bills/2011/BillPdf/HB0601.pdf.

223 Id.

224 Id.

225 L.B. 530, 102d Leg., 1st Sess. (Neb. 2011), available at http://nebraskalegislature.gov/FloorDocs/Current/PDF/Intro/LB53 0.pdf.

226 Id.

227 Id.

228 Id.

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(D) The position meets criteria in administrative rules … [that] establish the circumstances in which a credit history is a bona fide occupational requirement. 229

It is also a violation for an employer to require an employee or applicant to waive his or her rights under the Act. 230 An aggrieved party may bring a civil action for injunctive relief, damages, or both, and courts are permitted to award costs and reasonable attorneys' fees to a prevailing plaintiff. 231

12. Nevada

Under Nevada's proposed credit check law, an employer may request "a consumer report for the purpose of evaluating a consumer for employment, promotion, reassignment or retention" if "the person is required or authorized, pursuant to state or federal law, to use [the] consumer report … ; the person reasonably believes that the consumer has engaged in specific illegal activity" which may constitute a violation of state or federal law, or "the information contained in the consumer report is substantially related" to the position for which the consumer is being evaluated for employment, promotion, reassignment or retention as an employee. 232

Information in the report is "substantially related" to the position in question if the duties of the position involve "(1) the care custody and handling of or responsibility for money or other assets; (2) access to confidential information; (3) significant managerial responsibility; or (4) the direct exercise of law enforcement authority as an employee of a state or local law enforcement agency." 233 Nowhere in the statute is a specific penalty for violation of the law provided.

13. New Jersey

[*213] The proposed New Jersey credit check statute states:

No employer … shall seek to obtain or require a current or prospective employee to provide or consent to the creation of a credit report … unless the employer is required by law to obtain a credit report, or the employer reasonably believes that the employee has engaged in a specific activity that is financial in nature and constitutes a violation of law. 234

New Jersey allows credit reports if an employer can establish that one is necessary as a bona fide occupational requirement. Under the proposed statute:

Credit history shall be considered a bona fide job qualification for any current or prospective employee being evaluated for a position that:

(A) Is a managerial position which involves setting the financial direction or control of the business;

(B) Involves access to customers', employees', or employers' personal belongings or financial information, other than information customarily provided in a retail transaction;

(C) Involves a fiduciary responsibility to the employer, including, but not limited to, the authority to issue payments, transfer money or enter into contracts or involves leases of real property;

229 Id.

230 Id.

231 Id.

232 A.B. 331, 76th Leg., Reg. Sess. (Nev. 2011), available at http://www.leg.state.nv.us/Session/76th2011/Bills/AB/AB331.pdf

233 Id.

234 A.B. 3238, 214th Leg., Reg. Sess. (N.J. 2010), available at http://www.njleg.state.nj.us/2010/Bills/A3500/3238_ U1.HTM.

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(D) Provides an expense account for travel. 235

"Upon violation of [the] act, an aggrieved person may … institute a civil action … within one year from the date of the alleged violation." 236 The relief granted may include injunctive relief, compensatory or consequential damages, reasonable attorneys' fees, and court costs. 237 Additionally, an employer that violates the proposed law is subject to a civil penalty not exceeding $ 5000 for the first violation and $ 10,000 for each subsequent violation. 238 The proposed New Jersey law is one of the few that places a one-year time limit on commencement of the civil [*214] action. Although the language of the statute appears initially to give wide protection to employees or applicants, the broad exceptions, as well as the low threshold of allowing a credit report to be used if the employee has access to an expense account, create quite a large number of employees who would not be covered by the law.

14. New Mexico

New Mexico's proposed credit check statute states that "the purpose of the Employee Credit Information Privacy Act is to prevent a person's credit information from being used by an employer in an employment decision." 239 The proposed statute allows an employer to utilize a credit report if:

Good credit information is an established bona fide occupational requirement of a particular position or a particular group of the employer's employees. Information regarding a person's credit information is not a bona fide occupational requirement unless:

(A) the person applies for, or currently holds, employment that requires federal deposit insurance corporation clearance;

(B) the person applies for, or currently holds, employment at a financial service institution; or

(C) the … employment … requires United States security clearance. 240

The New Mexico statute is somewhat unique in that its definition of "bona fide occupational requirement" only encompasses positions in banking or those requiring U.S. government security clearance. The statute lays out specific language that must be used to notify employees or applicants when and if a credit check is used. 241 No specific penalties are listed for violations.

15. New York

The proposed New York credit check statute makes it "an unlawful discriminatory practice [for] an employer … to use a consumer credit report … as a criterion in employment decisions related to hiring, [*215] termination, promotion or discipline." 242 The bill contains an exception if the report is "(I) substantially job-related to the position, which may include, but not be limited to access to money, other assets or confidential information; or (II)

235 Id.

236 Id.

237 Id.

238 Id.

239 S.B. 72, 50th Leg., 1st Sess. (N.M. 2011), available at http://www.nmlegis.gov/Sessions/11%20Regular/bills/senate/ SB0072.pdf.

240 Id.

241 Id.

242 S.B. 6672, 2011-2012 State Assemb., Reg. Sess. (N.Y. 2011), available at http://open.nysenate.gov/legislation/bill/A6672- 2011.

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used with regard to a managerial position, a position in the office of court administration, [or] a position with a law enforcement agency … ." 243 Before the employer may request to use the consumer credit report information, however, the employee or applicant must consent explicitly to the use of the report. 244

The bill also amends subdivision (d), section 380-C of New York's general business law, stating, "If a person applying for credit, insurance, or employment refuses to authorize the procurement or preparation of an investigative consumer report, the prospective creditor, insurer or employer may decline to grant credit, insurance or employment on the grounds that the applicant refused to execute such authorization." 245 The above language referencing application for credit or insurance suggests that banks, credit card companies, and insurance companies are free to utilize credit reports as part of their decision-making process. No specific penalties for violation of the bill are provided.

16. Ohio

Ohio's proposed credit check law, Senate Bill 30, makes it an unlawful discriminatory practice "for an employer to use a person's credit rating or score or consumer credit history as a factor in making decisions regarding that person's employment, including hiring, tenure, terms, conditions, or privileges of employment, or any matter directly or indirectly related to employment." 246 The bill includes language permitting the use of certain "factors" in hiring which are unstated in the proposed statute, if related to a bona fide occupational qualification. Additionally, the bill provides for the right to a civil action with damages and attorneys' fees, as well as potential reinstatement. 247

Conversely, Ohio House Bill 131 states that "no employer shall discharge, refuse to hire, or otherwise discriminate against any person with respect to hire, tenure, terms, conditions, or privileges of employment, or any matter directly or indirectly related to employment [*216] based upon a consumer report or investigative consumer report … ." 248 The House bill outlines a broad exception permitting credit reports "if the position of employment is a supervisory, managerial, professional, or executive position at a financial institution." 249 "Employer" is defined as any person or firm with at least one employee. It is worth noting that the Senate bill provides a civil remedy, whereas the House bill contains only a minor criminal remedy.

17. Oregon

Under both the Oregon Senate and House bills, "it is an unlawful employment practice for an employer to obtain or use for employment purposes information contained in the credit history of an applicant for employment or an employee, or to refuse to hire, discharge, demote, suspend, retaliate or otherwise discriminate against an applicant or an employee … ." 250 The proposed laws do not apply to federally insured banks and credit unions, nor to employers required by state or federal law to use individual credit histories for employment purposes. 251 The Act

243 Id.

244 Id.

245 Id.

246 S.B. 30, 129th Gen. Assemb., Reg. Sess. (Ohio 2011), available at http://www.legislature.state.oh.us/bills.cfm?ID=129_SB_30.

247 Id.

248 H.B. 131, 129th Gen. Assemb., Reg. Sess. (Ohio 2011), available at http://www.legislature.state.oh.us/bills.cfm?ID=129_HB_131.

249 Id.

250 S.B. 1045, 75th Legis. Assemb., 2010 Spec. Sess. (Or. 2010), available at http://www.leg.state.or.us/10ss1/measpdf/sb1000.dir/sb1045.en.pdf.

251 Id.

20 Va. J. Soc. Pol'y & L. 159, *215

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allows the use of credit history where "the information is substantially job-related and the employer's reasons for the use of such information are disclosed to the employee or prospective employee in writing." 252 The statute allows aggrieved parties to bring a civil suit; however, the prevailing party - whether plaintiff or defendant - may be awarded court costs and attorneys' fees, thus chilling the statute's enforcement potential.

18. Pennsylvania

Under Pennsylvania's proposed credit check law:

No employer … shall procure a consumer report for employment purposes … unless the information is either: (1) substantially job related and the employer's reasons for the use of the information are disclosed to the employee or potential employee in writing, in which case, the burden of proof shall be on the employer … to [*217] demonstrate that the [report] is substantially job related." 253

The statute provides no definition of "substantially job related." Penalties are outlined in section 5 of the Pennsylvania Human Relations Act.

19. South Carolina

South Carolina's proposed credit check law states that "an employer may not use a credit report to evaluate a person for employment." 254 The law relies on Section 37-20-110(3)'s definition of "consumer report" and "credit report" as a "written, oral, electronic, or other communication of information by a consumer credit-reporting agency regarding a consumer's creditworthiness, credit standing, credit capacity, character, debts, general reputation, personal characteristics, or mode of living … ." 255 Although the statute defines "consumer report," it fails to define "employer," and does not provide concrete penalties for violations. The statute is currently in committee.

20. Texas

The proposed Texas credit check statute makes it illegal for "an agency in any branch of state government [to] consider an individual's credit information or credit score in deciding whether to hire the individual." 256 The bill only applies to state agencies, and does not address the use of credit reports or information by private sector firms. The statute does not apply to applicants for "a position of peace officer, reserve law enforcement officer, public security officer or county jailer … ." 257 It likewise does not apply to "a position that involves access to or the direct handling of money or negotiable instruments." 258 No penalty is listed for violation of the statute.

21. Vermont

Vermont's proposed credit check statute states that "an employer shall not: (1) fail or refuse to hire or recruit; discharge; or otherwise discriminate against an individual with respect to employment, [*218] compensation, or a

252 Id.

253 S.B. 128, Gen. Assemb. (Pa. 2011), available at http://www.legis.state.pa.us/ CFDOCS/Legis/PN/Public/btCheck.cfm?txtType=PDF&sessYr=2011 &sessInd=0&billBody=S&billTyp=B&billNbr=0128 &pn=0146.

254 H.B. 3101, Gen. Assemb., 119th Sess. (S.C. 2011), available at http://www.scstatehouse.gov/sess119_2011- 2012/bills/3101.htm.

255 Id.

256 H.B. 449, 82d Leg., Reg. Sess. (Tex. 2011), available at http://e-lobbyist.com/gaits/text/119987.

257 Id.

258 Id.

20 Va. J. Soc. Pol'y & L. 159, *216

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term, condition, or privilege of employment because of the individual's credit report or credit history." 259 The statute is not applicable if:

A. The information is required by state or federal law or regulation.

B. The position of employment involves access to confidential financial information.

C. The employer is a financial institution … or a credit union … .

D. The position of employment is that of law enforcement officer … emergency medical personnel … or a firefighter … .

E. The position of employment requires a financial fiduciary responsibility to the employer or a client of the employer … .

F. The employer can demonstrate that the information is a valid and reliable predictor of employee performance … . 260

The statute does not define "employer," nor does it list any specific penalty for violations. Employees who are provided with expense accounts are exempted, leaving a large number of persons unprotected. The bill passed the Vermont House of Representatives in 2011.

22. Wisconsin

The Wisconsin Senate 261 and Assembly 262 amendments prohibit employment discrimination based on credit history. The Assembly bill prohibits an employer from requesting that an employee provide credit history unless "the circumstances of an individual's credit history are substantially related to the circumstances of a particular job," or if "employment … depends on the bondability of the individual … and the individual may not be bondable due to his or her credit history." 263 The Assembly bill's definition of "credit history" is based on the one [*219] contained in the FCRA. Neither the Assembly nor the Senate bill defines the phrase "substantially related to the circumstances of a particular job." Additionally, neither bill provides any penalty for violations.

Virginia Journal of Social Policy & the Law Copyright (c) 2012 Virginia Journal of Social Policy & the Law Virginia Journal of Social Policy & the Law

End of Document

259 H.B. 42 (Vt. 2011), available at http://www.leg.state.vt.us/docs/2012/bills/ House/H-042.pdf.

260 Id.

261 S.B. 246, 2011 Leg., Reg. Sess. (Wis. 2011), available at http://docs.legis.wisconsin.gov/2011/related/proposals/sb246.pdf.

262 Assemb. B. 350, 2011 Leg., Reg. Sess. (Wis. 2011), available at https://docs.legis.wisconsin.gov/2011/related/proposals/ab350.pdf.

263 Id.

20 Va. J. Soc. Pol'y & L. 159, *218