By:  John F. Fullerton III

As a direct result of the financial crisis, an increasing number of states have enacted or are considering statutes that prohibit or restrict employers from obtaining and using credit reports for making hiring and other employment decisions.  Eight states have now passed such legislation – California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Washington and Vermont.  Similar legislation is pending in many other states – including New Jersey and New York – and bills have been introduced at the federal level as well.  In most states that have passed such legislation, there is some form of exemption specifically applicable to various types of financial institutions.  For example,

  • Connecticut and Vermont exempt “financial institution[s]” (broadly defined in the statutes).
  • Hawaii exempts “financial insitutions insured by a federal agency.”
  • Illinois exempts “entities engaged in banking, insurance and debt collection.”
  • Oregon exempts “federally insured banks or credit unions.”
  • Maryland exempts both “financial institutions that accept deposits that are insured by a federal agency (including an affiliate of the financial institution)” and “[a]n entity (or its affiliate) that is registered as an investment advisor with the U.S. Securities and Exchange Commission.”

New York has several relevant bills pending that would affect the use of credit reports for employment purposes.  The most significant of these is called the Credit Privacy in Employment Act (A.B. 8070-A / S.B. 4905), which was referred to the Assembly Committee on Consumer Affairs and Protection on May 27, 2011.  On May 25, 2012, the Committee proposed that the key amendments be moved from the Executive Law to the General Business Law,  and the bill was recommitted to the Committee.

The key text of the Assmebly bill currently provides:

No employer, employment agency, or licensing agency, or agent, representative or designee thereof, shall (1) use information in the  credit  history  of  a  job  applicant  or employee  in  connection with or as a criterion for employment decisions related to hiring, termination, promotion, demotion, discipline, compensation, or the terms, conditions or privileges of employment; or  (2) request the job applicant’s or employee’s credit history for  such purpose.

Currently, the only exception is if the employer is required by state or federal law to use individual credit history for employment purposes.  It is possible that an exception for financial services institutions similar to those that exist in other state laws will find its way into the legislation as part of a compromise to obtain passage of the bill, but that remains to be seen.  Thus, the financial services community in New York should be aware of the possibility that these restrictions on using, or even requesting, credit history for employment purposes may end up applying – assuming New York joins the trend and the legislation is enacted.  We’ll report back if it is.