United States: New York City Issues Guidance On City Law Prohibiting Most Employer Credit Checks

On April 16, 2015, the New York City Council passed the Stop Credit Discrimination in Employment Act (SCDEA), which makes it an unlawful discriminatory practice for an employer, labor organization or employment agency to request or use the consumer credit history of an applicant or employee for the purpose of making an employment decision, including the decisions to hire or promote individuals. The SCDEA went into effect on September 3, 2015, and, on that same date, the New York City Commission on Human Rights ("Commission") issued enforcement guidance on the SCDEA's provisions.

Under the SCDEA, the following acts are now generally prohibited by New York City employers:

  1. Requesting consumer credit history from job applicants or potential or current employees, either orally or in writing;
  2. Requesting or obtaining consumer credit history of a job applicant or potential or current employee from a consumer reporting agency; and
  3. Using consumer credit history in an employment decision or when considering an employment action.

Engaging in any of these acts will be deemed an unlawful discriminatory practice, even if it does not lead to an adverse employment action. However, the lack of an adverse employment action will be considered for the purpose of determining damages and/or penalties should a violation be found. For purposes of the SCDEA the following definitions apply:

  1. "Consumer credit history" shall mean an individual's credit worthiness, credit standing, credit capacity or payment history, as indicated by: (a) a consumer credit report; (b) credit score; or (c) information an employer obtains directly from the individual regarding: (i) details about credit accounts, including the individual's number of credit accounts, late or missed payments, charged-off debts, items in collections, credit limit, prior credit report inquiries; or (ii) bankruptcies, judgments or liens.
  2. "Consumer credit report" shall mean any written or other communication of any information by a consumer reporting agency that bears on a consumer's creditworthiness, credit standing, credit capacity or credit history.
  3. "Consumer reporting agency" shall meanany person or entity that, for monetary fees, dues or on a cooperative nonprofit basis, engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports or investigative consumer reports to third parties. Note that, unlike the definition of a "consumer reporting agency" under the New York State Fair Credit Reporting Act (NYSFCRA), a person need not regularly engage in assembling or evaluating consumer credit history in order to be a "consumer reporting agency" under the SCDEA.

There are eight narrow exceptions to the SCDEA's prohibition on requesting or using consumer credit history in making employment decisions:

  1. Employers required by state or federal law or regulation or by the Financial Industry Regulation Authority (FINRA) to use an individual's consumer credit history for employment purposes;
  2. Police officers, peace officers or positions with a law enforcement or investigative function at the Department of Investigation (DOI);
  3. Positions subject to a DOI background investigation;
  4. Positions requiring bonding under federal, state or city law or regulation;
  5. Positions requiring security clearance under federal or state law;
  6. Non-clerical positions having regular access to trade secrets, intelligence information or national security information – note that trade secrets include information that is maintained with a high level of secrecy and is generally only available to high level employees, not rank and file employees;
  7. Positions involving responsibility for funds or assets worth $10,000 or more; and
  8. Positions involving digital security systems.

These exemptions are construed very narrowly, and each exemption includes its own criteria that must be carefully examined before applying the exemption. Importantly, the exemptions apply to specific positions or roles and not individual applicants or employees. The following examples illustrate how narrowly the exemptions will be construed:

  • For the exemption involving the handling of $10,000 or more, the exemption will only apply to executive-level positions with financial control over a company, such as the Chief Financial Officer or Chief Operations Officer. It will not apply to all staff members of the company's finance department.
  • For the exemption applying to companies regulated by FINRA, the exemption only applies to individuals who are required to register with FINRA. It does not apply to individuals employed in a support role or who engage solely in clerical or ministerial duties.
  • SCDEA specifically states that the definition of "trade secrets" does not include client or customer mailing lists, recipes, formulas, processes and other information regularly collected in the course of business or regularly used by entry-level and non-salaried employees and supervisors or managers of such employees.

An employer claiming one of the exemptions must inform employees and applicants of the claimed exemption and keep a log of their use of such exemptions for a period of five years from the date the exemption is used in the form of an exemption log. The exemption log must include the following information:

  1. The claimed exemption;
  2. Why the claimed exemption covers the exempted position;
  3. The name and contact information of all applicants or employees considered for the exempted position;
  4. The job duties of the exempted position;
  5. The qualifications necessary to perform the exempted position;
  6. A copy of the applicant's or employee's credit history that was obtained pursuant to the claimed exemption;
  7. How the credit history was obtained; and
  8. How the credit history led to the employment action.

Employers will be required to share their exemption log with the Commission upon request.

Violations of the SCDEA will result in significant civil penalties of up to $125,000 for violations and up to $250,000 for violations that are the result of willful, wanton or malicious conduct. The amount of the civil penalty will take into consideration the severity of the violation, the existence of subsequent violations, the employer's size (both number of employees and revenue) and the employer's actual or constructive knowledge of the SCDEA. Importantly, these penalties are in addition to the remedies available to successful claimants under the New York City Human Rights Law including, but not limited to, back and front pay, compensatory damages and punitive damages. Finally, the SCDEA is in addition to, and does not supplant the regulations currently in place and applicable to most employers under the federal Fair Credit Reporting Act and NYSFCRA.

As a result of the passage of the SCDEA, New York City employers should review their job applications, hiring practices and promotion practices to ensure that they do not seek information regarding individuals' credit history. Indeed, New York City employers who ask about credit history must revise their employment practices to exclude such questions. Employers should also review job postings and other pre-hire paperwork to ensure that they do not inquire about or reference information concerning an applicant's credit history.

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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Gregg M. Kligman
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