We are not aware of any state or federal laws that would prevent you from taking an adverse action against an employee based on a credit report or credit score, with one caveat (discussed below).

State and Federal Law:

• State law: Illinois’s Employee Credit Privacy Act prohibits most employers from retaliating against an employee based on information in the employee’s credit report, but it exempts “[a]ny bank holding company, financial holding company, bank, savings bank, savings and loan association, credit union, or trust company, or any subsidiary or affiliate thereof.” 820 ILCS 70/5.

• Federal law: We agree that you may take an adverse employment action (“a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee,” 15 USC 1681a(k)(1)(B)(ii)), provided that you comply with the pre-adverse-action and adverse action notice requirements (and assuming that you complied with the notice and certification requirements before obtaining the report). 15 USC 1681b(b)(3)Brinckerhoff-Weisberg (June 27, 1997). Sample ECOA/FCRA model disclosure forms, part of Regulation B, are available here.

Caveat: 

• 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).

• There are conflicting court decisions as to whether this prohibition on discrimination applies to hiring decisions or only to firing decisions. Rea v. Federated Investors, 627 F.3d 937, 940–41 (3rd Cir. 2010) (acknowledging a conflict in case law but concluding that the Bankruptcy Code does not prohibit discrimination on the basis of bankruptcy in hiring decisions).

• There are also conflicting court decisions as to whether it is illegal to fire an individual if bankruptcy was not the sole reason for the termination. See Laracuente v. Chase Manhattan Bank, 891 F.2d 17, 21–22 (1st Cir. 1989) (discussing split in authority as to whether bankruptcy must be the sole reason for the termination and concluding that an employer is liable for discrimination only if the bankruptcy was the sole reason for the termination).

In more detail, the Fair Credit Reporting Act (FCRA) requirements for taking an adverse action for employment purposes are as follows:

• 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.