Q&A: Rescinding an employment offer based on credit check results

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Question: We are hiring a new employee in our accounting office. We made an offer contingent upon a successful background and credit check. The candidate’s background check was good, but the credit check was awful. Can we withdraw the offer based on these results? 

Answer: Yes you can, as long as you follow the right procedures.  When an employer uses information such as a background check or consumer credit report for hiring, retention, promotion or reassignment decisions, it is subject to the Fair Credit Reporting Act (FCRA), which is regulated by the Federal Trade Commission (FTC). Many states have also adopted laws that restrict employers’ use of credit reports in certain situations. There are usually exceptions, such as when the position requires bonding under state or federal law or involves handling significant cash or finances, such as an accountant. Using credit reports may also expose an employer to liability under Title VII of the Civil Rights Act of 1964, which prohibits discrimination in compensation and other terms and conditions of employment. Therefore, employers should only request a credit check on potential or current employees for legitimate business reasons.

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Employers are required to notify applicants in clear and conspicuous language that a credit report will be used during the hiring process and get written permission from a candidate to run a credit report or background check.

In your situation, if you intend to withdraw this applicant’s offer based on the results of the credit check, then you must give the candidate a notice that includes a copy of the credit report you received and a copy of “A Summary of Your Rights Under the Fair Credit Report Act.” The company providing the applicant’s credit report should give you this summary of rights. The applicant then has an opportunity to review the report and tell you if it is correct. If the applicant has been the victim of identity theft, they can have information about unpaid fraudulent bills blocked or removed from the credit report if certain requirements are met.

If you proceed with withdrawing the offer, then you must notify the applicant of the withdrawal either orally, in writing, or electronically. The notice must include the name, address, and phone number of the consumer reporting company you used for the report and must also indicate that the consumer reporting company did not make the decision to take unfavorable action and can’t give specific reasons for it. Finally, you must notify the applicant of the right to dispute the accuracy and completeness of any information furnished by the consumer reporting company and that they are entitled to a free report from that company if they request one within 60 days.

In the last several years, there have been numerous instances of data breaches that left individuals’ social security numbers, credit card numbers, demographics, and other sensitive information exposed. As recently as last month, one of the largest consumer credit reporting agencies in the country, Equifax, reported that an estimated 143 million American consumers’ private information was unlawfully accessed in a breach. Therefore, it is possible the candidate may have been impacted by one or more recent data breaches or by other fraudulent means.

Provided you have followed the correct steps and have legitimate business reasons for ensuring that incumbents in that position have reasonably good credit, you can make a determination about whether to hire the candidate based on a bad credit report.

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Jeanette Coleman

Written by Jeanette Coleman