New York Bans Credit Checks in Employment Decisions

Beginning April 18, employers screening or employing workers in New York are prohibited from using credit history information in employment decisions, subject to certain exceptions.

Outside of specific circumstances, it will be considered discrimination to use someone’s credit history against them while considering hiring, firing, compensation, or promotion decisions.

There are some exceptions to the rule. Employers can check credit history if the position requires security clearance, is in law enforcement, involves financial authority, or includes regular access to trade secrets.

Governor Kathy Hochul signed the law late last year, aimed at making hiring decisions more equitable. It takes effect statewide on April 18, reflecting a broader regulatory trend limiting the use of screening tools that are not closely tied to job performance.

New York joins 10 other states that have enacted legislation concerning the use of consumer credit history in employment decisions, including: California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington. Additionally, several major cities, including New York City, Chicago, Philadelphia, and Washington D.C., have also enacted similar restrictions.

“This new prohibition generally expands New York City’s Stop Credit Discrimination in Employment Act, which has banned New York City employers from engaging in similar practices since 2015, subject to limited exemptions,” said Catherine Weiss Butto, an attorney in the New York City office of Spencer Fane. “The new amendment [to the New York State Fair Credit Reporting Act] strictly limits an employer’s ability to utilize information related to an applicant’s or employee’s credit history when evaluating that individual for employment, promotion, reassignment, or retention,” she said.

The law defines “consumer credit history” as an individual’s credit worthiness, credit standing, credit capacity, or payment history, as shown by a consumer credit report generated by a consumer reporting agency or a credit score, Weiss Butto said.

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Employers are permitted to request or use an individual’s consumer credit history for employment-related decisions when the employer is required by state or federal law, or by a self-regulatory organization, to do so, in addition to role-based exceptions, she added.

The amendment also imposes restrictions on consumer reporting agencies, otherwise known as background screening companies, said Pamela Q. Devata, an attorney in the Chicago office of Seyfarth. “A consumer reporting agency may not provide a consumer report containing credit-history information for employment purposes unless a statutory exemption applies. This requirement mirrors the employer-side prohibition and prevents background providers from supplying credit information where employers may not lawfully use it.”

Marissa Mastroianni, an attorney in the New York City office of Cole Schotz, said that there are a couple areas in which employers may get tripped up.  

“Employers without a New York office may think they don’t have to worry about it,” she said. “That would be a mistake. The way the law is drafted, where the applicant or employee is located, not the company’s location, is what matters. A company based in Texas that hires a remote employee in New York would have to comply with this law for that specific background check for that worker.”

This puts multijurisdictional employers in a complex situation. An increasing number of multijurisdictional employers have stopped conducting credit history checks altogether, except for the roles or industries that still require them, Mastroianni said.

Another potential problem area is around exceptions. There are very specific exceptions in the law and companies may not always get that discernment right, she said. “The case law will eventually develop, which will help define some of the more ambiguous exceptions.”

Mastroianni said that to ensure compliance, employers should notify their background check providers to let them know that they shouldn’t run credit histories for New York residents unless they fall under one of the exceptions. That notice should be documented. In addition, employers should update new hire forms to exclude mention of credit history checks, she said.

“New York employers also remain subject to the federal Fair Credit Reporting Act, which sets forth additional specific procedures for requesting and using consumer reports when making employment-related decisions,” Weiss Butto said.

Devata noted that because New York City’s employer credit check ban is already one of the strictest credit-check laws in the country, many employers in the city may see little or no change in their current practices once the state law takes effect.