We do not see any problems with asking an employment applicant about collections items on the applicant’s credit report. The Fair Credit Reporting Act (FCRA) expressly allows you to obtain a “consumer report” for any “employment purpose,” provided that you follow the disclosure and authorization requirements. 15 USC 1681b(b)(1). (Also, while not applicable here, note that the Bankruptcy Code prohibits any private employer from terminating an employee or discriminating with respect to the employment of an individual “solely because” the individual has been a debtor in a bankruptcy case. 11 USC 525(b).)

Note that an adverse action notice would be required if the bank does not decide to hire the applicant. While we understand that the bank did go ahead with hiring the individual, for future reference, here is our summary of the adverse action requirements for adverse employment decisions based on credit reports:

• Pre-adverse-action notice: Before taking an adverse employment action, you must provide the employee with a copy of the report and a written statement of consumer rights under the FCRA. 15 USC 1681b(b)(3)(C). (Dodd-Frank requires the CFPB to create a new form, to replace the FTC’s form. However, the CFPB has not yet released a new form, and its own examination manual states that the FTC form should be used. The FTC form is available here.)
  • Less stringent requirements apply if you are taking adverse action against a consumer who applied for employment via “mail, telephone, computer, or other similar means.” 15 USC 1681b(b)(3)(B).

• Adverse action notice: You must also provide the general adverse action notice to the employee (15 USC 1681m(a)), which has four components:
  • oral, written, or electronic notice of the adverse action,
  • written or electronic disclosure of the numerical credit score, with several specific disclosures.
  • If you do obtain a numerical credit score, you must disclose:
    • ​the current credit score of the consumer or the most recent credit score of the consumer that was previously calculated by the credit reporting agency for a purpose related to the extension of credit;
    • the range of possible credit scores under the model used;
    • all of the key factors that adversely affected the credit score of the consumer in the model used, the total number of which shall not exceed 4, subject to paragraph (9) [number of enquiries as a key factor]
    • the date on which the credit score was created; and
    • the name of the person or entity that provided the credit score or credit file upon which the credit score was created.
  • If you did not obtain a numerical credit score, you do not need to make any of these disclosures (though all of the other disclosures would still apply). See Supplementary Information, Appendix C to Part 202—Sample Notification Forms, 76 Fed. Reg. 41590, 41592 (July 15, 2011) (“a person is not required to disclose a credit score and related information if a credit score is not used in taking the adverse action”).
  • oral, written, or electronic disclosure of:
    • the name, address, and telephone number of the consumer reporting agency (including a toll-free telephone number established by the agency if the agency compiles and maintains files on consumers on a nationwide basis) that furnished the report to the person; and
    • a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken; and
  • oral, written, or electronic notice of the consumer’s right:
    • to obtain a free copy of a consumer report, including an indication of the 60-day waiting period; and
    • to dispute with a consumer reporting agency the accuracy or completeness of any information in a consumer report furnished by the agency.