United States: New York City Council Passes Ground-Breaking Legislation Limiting The Use Of Credit Checks In Employment

Last Updated: April 20 2015
Article by Jill L. Rosenberg

On April 16, 2015, the New York City Council, by a vote of 47-3, approved legislation that would prohibit the use of credit checks in employment decisions except in limited circumstances.  The bill, which is expected to be signed by Mayor Bill De Blasio, would amend the New York City Human Rights Law to make use of credit history in employment decisions an unlawful discriminatory practice.  In passing this law, New York City joins the growing number of states and municipalities that have enacted legislation to restrict the ability of employers to request or use the credit history of applicants and employees.  These state and local initiatives stem from the increased use of credit history as an employment screening tool and from concerns that credit history is not relevant to the performance of many jobs, and moreover, may adversely affect certain groups, including minorities and low-income individuals.  The New York City bill is noteworthy in that it is one of the most restrictive laws to date, even after certain exceptions were added to the proposed legislation.

BACKGROUND

When initially introduced over a year ago, the bill contained an outright ban on the use of an individual's consumer credit history for hiring and other employment purposes except when required by federal or state law.  During and following hearings held this past fall by the New York City Council, numerous business groups and other organizations advocated for additional exceptions, including for employees in highly sensitive positions in the financial, technology and retailing sectors and for employees in law enforcement.  Supporters of these and other exceptions also suggested that New York City follow recently enacted credit check laws in other states, including Connecticut, which contain exceptions for a variety of sensitive and senior level positions where credit history may be relevant.

Ultimately, the New York City Council agreed to many, but not all, of the exceptions requested by business and other groups.  Given the prominence of the securities industry in New York City, one of the more notable exceptions, supported by the Securities Industry and Financial Markets Association (SIFMA) and FINRA, permits the use of credit history for prospective employees of broker-dealers who are required to be registered with FINRA.  Another significant exception, which was added to the bill at the behest of the Mayor's office, permits the use of credit reports for the employment of police officers and certain public officials.

SUMMARY OF THE BILL

Except as specifically provided in the law, it will be an unlawful discriminatory practice for an employer or employment agency to request or use for hiring or other employment purposes the "consumer credit history" of an employee or applicant.  "Consumer credit history" is defined as an individual's credit worthiness or payment history as indicated by:  (a) a consumer credit report; (b) credit score; or (c) information the employer obtains directly from the individual regarding their credit accounts (including such items as late or missed payments or items in collection) or bankruptcies, judgments or liens.

EXCEPTIONS

Employers will be permitted to request and use consumer credit history for employment purposes under the following circumstances:

  • When required by state or federal law or regulations;
  • When required by "a self-regulatory organization as defined in section 3(a)(26) of the Securities Exchange Act of 1934" (g., FINRA) (in support of this exception, FINRA relied on FINRA Rule 3110(e), which becomes effective on July 1, 2015, and requires broker-dealers to conduct background investigations of applicants for FINRA registration and verify information on the applicant's Form U-4, including disclosures about bankruptcies and outstanding judgments or liens);
  • For employment as a police officer or public official in a position involving a "high degree of public trust";
  • For positions in which an employee is required to be bonded under City, state or federal law;
  • For positions in which an employee is required by law to possess security clearance or has regular access to intelligence information or national security information;
  • For non-clerical positions having regular access to "trade secrets" (which is defined under the law and specifically excludes client, customer or mailing lists);
  • For positions that have signing authority over third party funds or assets of $10,000 or more or that involve fiduciary responsibility to the employer with authority to enter financial agreements on behalf of the employer of $10,000 or more; or
  • For computer security positions where the regular duties allow the employee to modify digital security systems in place to prevent the unauthorized use of an employer's or client's networks or databases.

The law also would prohibit agencies from requesting or using consumer credit history for licensing and permitting purposes except when such use is required by state or federal law or regulations.

Employers and licensing agencies may request or receive consumer credit history information pursuant to subpoena, court order or law enforcement investigation.

ENFORCEMENT

Since the law is an amendment to the New York City Human Rights Law and the law contains no separate enforcement scheme, aggrieved individuals will have the same rights and remedies as others claiming discrimination under the employment provisions of the New York City Human Rights Law.  Specifically, individuals will be able to file a complaint of discrimination with the New York City Commission on Human Rights (with a one-year statute of limitations) or file an action directly in court (with a three-year statute of limitations).  Remedies for successful plaintiffs can include back pay, reinstatement or other equitable relief, compensatory and punitive damages, and attorneys' fees and costs.

In addition to allowing a private right of action, the law directs the New York City Commission on Human Rights to request from employers information about their use of the exemptions in the law and within two years to report back to the New York City Council on the results of such request and any relevant feedback from employers.  How the City Commission will make these requests and what information they will seek remains to be seen.

EFFECTIVE DATE

The law will become effective 120 days after enactment.

IMPLICATIONS FOR EMPLOYERS

For many employers, the law will have a major impact on their ability to continue to request or use consumer credit reports for their employees and applicants in New York City.  Employers should carefully review the exceptions in the law to determine which positions may still be subject to credit checks.  Employers with employees across New York State (which has not passed credit check legislation) could find themselves in the unusual position of being unable to use credit histories for applicants and employees in New York City but still able to do so for employees in other locations like Westchester and Nassau and Suffolk County, where no such ban exists. Whether such employers will continue to rely on credit reports for employees working outside of New York City remains to be seen.

New York City employers who may continue to rely on consumer credit reports for employment decisions must still comply with the various notice and consent requirements of the federal and state Fair Credit Reporting Acts.   In addition, employers should be mindful that use of credit reports in the hiring process could have a disparate impact on certain minority and other protected groups, a subject of recent focus by the Equal Employment Opportunity Commission.  Given the increased scrutiny on the use of consumer credit history in employment decisions, this is a good time for employers in New York City—and elsewhere—to revisit their credit check practices to determine whether they serve a legitimate business purpose and to ensure that they are in compliance with the law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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