Restricting Credit Checks for Employment Decisions Act
Bill: H.R.4144 | Sponsor: Rep. Lawson, Al, Jr. (D-FL)
Policy area: Finance and Financial Sector

Summary:
Restricting Credit Checks for Employment Decisions Act
This bill generally prohibits a consumer reporting agency from providing a consumer's credit information for employment purposes, unless otherwise required by law or regulation or for a national security investigation.

To amend the Fair Credit Reporting Act to ban the use of credit 
   information for most employment decisions, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Restricting Credit Checks for 
Employment Decisions Act''.

SEC. 2. FINDINGS.

    Congress finds the following:
            (1) The use of credit reports as a factor in making hiring 
        decisions has been found to be prevalent in a diverse array of 
        occupations, and is not limited to certain high-level 
        management or executive positions.
            (2) According to the California Labor Federation, only 25 
        percent of employers researched the credit history of job 
        applicants in 1998. However, this practice had increased to 43 
        percent by 2006 and to 60 percent by 2011.
            (3) A study titled ``Do Job Applicant Credit Histories 
        Predict Job Performance Appraisal Ratings or Termination 
        Decisions?'', published in 2012, found that, while credit 
        history might conceptually measure a person's level of 
        responsibility, ability to meet deadlines, dependability, or 
        integrity, it does not, in practice, actually predict an 
        employee's performance or likelihood to quit. Credit reports 
        contain many inaccuracies and credit history can be 
        contaminated by events that are sometimes outside a person's 
        control, such as a sudden medical expense after an accident or 
        the loss of a job during an economic downturn. The study found 
        that there is no benefit from using credit history to predict 
        job performance or turnover.
            (4) Despite the absence of data showing a correlation 
        between job performance and credit-worthiness, employers 
        continue to use credit checks as a proxy for assessing 
        character and integrity. According to a 2012 Society for Human 
        Resource Management survey, organizations indicated that they 
        used credit checks on job candidates primarily to reduce or 
        prevent theft and embezzlement and to minimize legal liability 
        for negligent hiring.
            (5) The use of credit checks for employment purposes 
        creates a true ``catch-22'' for unemployed people with impaired 
        credit. For example, the financial hardship caused by losing a 
        job may cause some unemployed individuals to make late or 
        partial payments on their bills, but their poor credit standing 
        caused by this negative information on their consumer report 
        can also impede their chances of obtaining a new job to end 
        their financial distress.
            (6) A September 2014 report by the New York City Council's 
        Committee on Civil Rights noted that, for those who have been 
        unemployed for an extended period of time and whose credit has 
        suffered as they fell behind on bills, the use of credit 
        reports in the hiring process can exacerbate and perpetuate an 
        already precarious situation.
            (7) In a March 2013 Demos report titled ``Discredited: How 
        Employment Credit Checks Keep Out Qualified Workers Out of a 
        Job'', one in four survey participants who were unemployed said 
        that a potential employer had requested to check their credit 
        report as part of a job application. Among job applicants with 
        blemished credit histories in the survey, one in seven had been 
        told that they were not being hired because of their credit 
        history.
            (8) While job applicants must give prior approval for a 
        prospective employer to pull their credit reports under the 
        FCRA, this authorization, as a practical matter, does not 
        constitute an effective consumer protection because an employer 
        may reject any job applicant who refuses a credit check.
            (9) Some negative information on a report may stem from 
        uncontrollable circumstances, or significant life events in a 
        consumer's life, such as a medical crisis or a divorce. Demos 
        found that poor credit is associated with household 
        unemployment, lack of health coverage, and medical debt, which 
        are factors that reflect economic conditions in the country and 
        personal misfortune that have little relationship with how well 
        a job applicant would perform at work.
            (10) In October 2011, FICO noted that from 2008 to 2009 
        approximately 50 million people experienced a 20-point drop in 
        their credit scores and about 21 million saw their scores 
        decline by more than 50 points. While the Great Recession 
        reduced many consumers' credit scores due to foreclosures and 
        other financial hardships, the financial crisis had a 
        particularly harsh impact on African Americans and Latinos, as 
        racial and ethnic minorities and communities of color were 
        frequently targeted by predatory mortgage lenders who steered 
        borrowers into high-cost subprime loans, even when these 
        borrowers would have qualified for less costly prime credit.
            (11) A May 2006 Brookings Institution report titled 
        ``Credit Scores, Reports, and Getting Ahead in America'' found 
        that counties with a relatively higher proportion of racial and 
        ethnic minorities in the United States tended to have lower 
        credit scores compared with counties that had a lower 
        concentration of communities of color.
            (12) Studies have consistently found that African-American 
        and Latino households tend, on average, to have lower credit 
        scores than White households. The growing use of credit checks, 
        therefore, may disproportionately screen otherwise qualified 
        racial and ethnic minorities out of jobs, leading to 
        discriminatory hiring practices, and further exacerbating the 
        trend where unemployment for African-American and Latino 
        communities is elevated well above the rate of Whites.
            (13) A 2012 Demos survey found that 65 percent of White 
        respondents reported having good or excellent credit scores 
        while over half of African-American households reported only 
        having fair or bad credit.

SEC. 3. PROHIBITION ON THE USE OF CREDIT INFORMATION FOR MOST 
              EMPLOYMENT DECISIONS.

    (a) In General.--Section 604 of the Fair Credit Reporting Act (15 
U.S.C. 1681b) is amended--
            (1) in subsection (a)(3)(B), by inserting ``, subject to 
        the requirements of subsection (b)'' after ``purposes''; and
            (2) in subsection (b)--
                    (A) in paragraph (1)--
                            (i) by amending the paragraph heading to 
                        read as follows: ``Use of consumer reports for 
                        employment purposes'';
                            (ii) in subparagraph (A), by redesignating 
                        clauses (i) and (ii) as subclauses (I) and 
                        (II), respectively (and conforming the margins 
                        accordingly);
                            (iii) by redesignating subparagraphs (A) 
                        and (B) as clauses (i) and (ii), respectively 
                        (and conforming the margins accordingly);
                            (iv) by striking the period at the end of 
                        clause (ii) (as so redesignated) and inserting 
                        ``; and'';
                            (v) by striking ``agency may furnish'' and 
                        inserting ``agency--
                    ``(A) may furnish''; and
                            (vi) by adding at the end the following new 
                        subparagraph:
                    ``(B) except as provided in paragraph (5), may not 
                furnish a consumer report with respect to any consumer 
                in which any information contained in the report bears 
                on the consumer's creditworthiness, credit standing, or 
                credit capacity.''; and
                    (B) by adding at the end the following new 
                paragraphs:
            ``(5) Requirements for consumer reports bearing on the 
        consumer's creditworthiness, credit standing, or credit 
        capacity.--
                    ``(A) In general.--A person may use a consumer 
                report with respect to any consumer in which any 
                information contained in the report bears on the 
                consumer's creditworthiness, credit standing, or credit 
                capacity only if--
                            ``(i) either--
                                    ``(I) the person is required to 
                                obtain the report by a Federal, State, 
                                or local law or regulation; or
                                    ``(II) the information contained in 
                                the report is being used with respect 
                                to a national security investigation 
                                (as defined in paragraph (4)(D));
                            ``(ii) none of the cost associated with 
                        obtaining the consumer report will be passed on 
                        to the consumer to whom the report relates; and
                            ``(iii) the information contained in the 
                        consumer report will not be disclosed to any 
                        other person other than--
                                    ``(I) in an aggregate format that 
                                protects a consumer's personally 
                                identifiable information; or
                                    ``(II) as may be necessary to 
                                comply with any applicable Federal, 
                                State, or local equal employment 
                                opportunity law or regulation.
                    ``(B) Disclosures.--A person who procures, or 
                causes to be procured, a consumer report described in 
                subparagraph (A) for employment purposes shall, in the 
                disclosure made pursuant to paragraph (2), include--
                            ``(i) an explanation that a consumer report 
                        is being obtained for employment purposes;
                            ``(ii) the reasons for obtaining such a 
                        report; and
                            ``(iii) the citation to the applicable 
                        Federal, State, or local law or regulation 
                        described in subparagraph (A)(i)(I).
                    ``(C) Adverse actions.--In using a consumer report 
                described in subparagraph (A) for employment purposes 
                and before taking an adverse action based in whole or 
                in part on the report, the person intending to take 
                such adverse action shall, in addition to the 
                information described in paragraph (3), provide to the 
                consumer to whom the report relates--
                            ``(i) the name, address, and telephone 
                        number of the consumer reporting agency that 
                        furnished the report (including, for a consumer 
                        reporting agency that compiles and maintains 
                        files on consumers on a nationwide basis, a 
                        toll-free telephone number established by such 
                        agency);
                            ``(ii) the date on which the report was 
                        furnished; and
                            ``(iii) the specific factors from the 
                        report upon which the adverse action (as 
                        defined in section 603(k)(1)(B)(ii)) was based.
                    ``(D) National security investigations.--The 
                requirements of paragraph (4) shall apply to a consumer 
                report described under subparagraph (A).
                    ``(E) Non-circumvention.--With respect to a 
                consumer report in which any information contained in 
                the report bears on the consumer's creditworthiness, 
                credit standing, or credit capacity, if a person is 
                prohibited from using the consumer report pursuant to 
                subparagraph (A), such person may not, directly or 
                indirectly, either orally or in writing, require, 
                request, suggest, or cause any employee or prospective 
                employee to submit such information to the person as a 
                condition of employment.
                    ``(F) Non-waiver.--A consumer may not waive the 
                requirements of this paragraph with respect to a 
                consumer report.
            ``(6) Rule of construction.--Nothing in this subsection 
        shall be construed to require a consumer reporting agency to 
        prevent a Federal, State, or local law enforcement agency from 
        accessing information in a consumer report to which the law 
        enforcement agency could otherwise obtain access.''.
    (b) Technical Amendment.--The Fair Credit Reporting Act (15 U.S.C. 
1681 et seq.) is amended by striking ``section 604(b)(4)(E)(i)'' each 
place such term appears and inserting ``section 604(b)(4)(D)(i)''.
    (c) Rule of Construction.--The amendments made by this Act may not 
be construed as limiting the ability of a person to use non-financial 
or non-credit related consumer report information.
    (d) Rulemaking.--Not later than the end of the 2-year period 
beginning on the date of the enactment of this Act, the Bureau of 
Consumer Financial Protection shall issue final rules to implement the 
amendments made by this Act.
    (e) Effective Date.--The amendments made by this section shall take 
effect 2 years after the date of the enactment of this Act.
                                 <all>