New Maryland Legislation Restricts Use of Credit Reports in Employment Decisions

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04/22/2011 4:02 AM

Governor O’Malley has signed into law the Maryland Job Applicant Fairness Act (the “Act”) , which takes effect on October 1, 2011. This highly debated legislation will greatly restrict an employer’s ability to use a credit report in making employment decisions.

Supporters of the Act argue that credit reports were never designed to determine job worthiness and an employer’s consideration of credit history discriminates against the economically disadvantaged and those struggling with debt. Without the statute, supporters argue, such things as identity theft, medical debts, or foreclosure proceedings under the Making Homes Affordable Program could be unfairly considered by employers in hiring. On the other hand, opponents of the Act argue that credit reports are a standard component of candidate background investigations and necessary to find the strongest candidates for employment. Also, opponents point out that applicants have existing legal protection under the Fair Credit Reporting Act (FCRA), which requires that an employer give a job candidate an opportunity to refute, correct or explain any credit history information that might weigh against the candidate during the hiring process.

The Act states that an employer may not use an applicant’s or employee’s credit history to: (1) deny employment; (2) discharge the employee; or (3) determine compensation or terms, conditions, or privileges of employment. Employers who do may be subject to penalties up to $2,500.00 per violation. The law does not, however, prohibit employers from performing employment-related background investigations that (1) include the use of a consumer report or an investigative consumer report, (2) are authorized under the federal Fair Credit Reporting Act, and (3) do not involve investigation of credit information.

Certain employers, however, will be exempt from the Act. The Act’s restrictions will not apply to: (1) employers required by state or federal law to inquire into an applicant’s or employee’s credit history, like certain government agencies and contractors; (2) financial institutions, and their affiliates, that accept federally insured deposits; (3) credit union share guaranty corporations approved by the Maryland Commissioner of Financial Regulations; and (4) registered “investment advisors” and their affiliates.

An employer may request and use an applicant’s or employee’s credit report or credit history for purposes other than those specified above, after an offer of employment is made. In addition, an employer may use an applicant or employee’s credit report or credit history in staffing a position for which an employer has a bona fide purpose for requesting or using information in a credit report or credit history that is substantially job-related and disclosed in writing to the applicant or employee. Examples of this include: (1) a managerial position that involves setting the direction or control of a business, or a department, division, unit or agency of the business; (2) a position that involves access to personal information of a customer, employee, or employer, except for personal information customarily provided in retail transactions; (3) a position that involves a fiduciary responsibility to the employer, including the authority to issue payments, collect debts, transfer money, or enter into contracts; (4) a position for which an expense account or corporate debit or credit card is provided; or (5) a position where a person will have access to confidential business information or trade secrets. Use of credit reports or credit history under this provision will require an employer to evaluate each position on a case by case basis to determine whether such use is authorized.

The requirements of the Act will definitively limit and change actions an employer may take in the hiring process. Maryland employers and human resources professionals should immediately consider the Act’s provisions and reexamine their own hiring criteria and procedures so as to avoid potential liability in employment decisions. For more information or assistance with compliance, please contact Christopher J. Tully at 410.752.9755 or

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