Should Poor Credit be a Bar to Employment?

In a recently reported decision, the variety store chain Dollar General agreed to pay a settlement of over $4,000,000 to resolve a class action lawsuit which alleged that it violated the Fair Credit Reporting Act by using credit reports improperly in denying employment to job applicants.

Under FCRA, if an employer seeks to use a consumer credit report to evaluate a job candidate for employment, it must 1) get the applicant’s consent before obtaining the report, 2) give the applicant a warning, together with a copy of the report, if the employer plans to reject the applicant because of the report, and 3) give the applicant an “adverse action notice” if the employer uses the report to deny the job-seeker’s application.

The lawsuit alleged that Dollar General did not follow these procedures in denying employment to several thousand job applicants. Under the terms of the deal, people who applied for jobs at Dollar General but were turned away based on their credit report will receive a small monetary settlement.

This case highlights the pitfalls awaiting companies who use consumer credit reports to make hiring decisions. In our view, consumer credit reports seem to have little relevance to a employee’s skills, qualifications or potential for success. There are many outstanding job candidates who may have poor credit for any number of reasons. Companies who use routinely use credit reports to screen job applicants must do so responsibly and within the bounds of the law.