New York City Issues Guidance on Credit Check Law

Posted: September 15, 2015

Credit Check Law

The New York City Commission on Human Rights (NYCCHR) issued legal enforcement guidance on the “Stop Credit Discrimination in Employment Act” (SCDEA) that is effective as of September 3, 2015. As covered previously in the Compliance Corner, the New York City Council passed the SCDEA in April 2015, prohibiting employers from requesting or using consumer credit history for employment purposes. Further, employers may not discriminate against any individual in terms of hiring, compensation, or the terms, conditions or privileges of employment based on consumer credit history. According to the guidance, the SCDEA “reflects [NYC’s] view that consumer credit history is rarely relevant to employment decisions” and that the NYC Council intended the law “be the strongest bill of its type in the country prohibiting discriminatory employment credit checks.” The Guidance reiterates the definition of “consumer credit history” which includes items such as a consumer credit report, credit score or information obtained by the employer regarding credit accounts or bankruptcies, judgments or liens. Further, the Guidance notes that the definition of a “consumer reporting agency” goes beyond the Fair Credit Reporting Act definition and is not limited to just those that “regularly” engage in assembling or evaluating consumer credit history. Chargeable Violations Employers must be cognizant of the so-called “chargeable violations” of the SCDEA which include: requesting consumer credit history from applicants or employees (orally or in writing), requesting/obtaining consumer credit history about applicants or employees from a consumer reporting agency and using credit history in an employment decision. Notably, the practices do not need to lead to an adverse employment action (such as not hiring an applicant). Instead, committing the practices themselves is sufficient for an employer to be charged with a violation. Exemptions As provided in the SCDEA, there are limited exemptions that are position specific (i.e., the exemptions do not apply to “an entire employer or industry”). The guidance makes clear that the exemptions will be “construed narrowly” and that employers will bear the burden to prove that an exemption applies. The following are the SCDEA’s exemptions and selected notes from the guidance:
  1. Employers required by state or federal law or regulation or by FINRA to use consumer credit history for employment purposes.
    • The FINRA exemptions applies to only those individuals required to register with FINRA, otherwise the SCDEA will apply. As of September 3rd, the only New York law requiring evaluation of credit history applies to licensed mortgage loan originators (seeY. Bank. L. § 559-d(9)).
  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 check.
    • Applies primarily to city agencies.
  4. Positions requiring bonding under federal, state or city law or regulation.
    • Specific bonding must be legally required and not simply permitted. Examples provided are Auctioneers (N.Y. City Admin. Code § 20-279) and Tow Truck Drivers (§ 20-499).
  5. Positions requiring security clearance under federal or state law.
    • Applies only when the review of consumer credit information is done by the federal or state government.
  6. Non-clerical positions having regular access to trade secrets, intelligence information or national security information.
    • Trade secrets does not include information relating to customer lists, processes, recipes or other information regularly collected and used by entry-level or non-salaried employees.
  7. Positions involving responsibility for funds or assets worth $10,000 or more.
    • Generally this exemption applies only to executive-level positions with financial control of a company. It does not apply to all staff within a company’s finance department.
  8. Positions involving digital security systems.
    • Applies to positions at the executive level that controls access to all parts of a company’s computer system. It does not apply to any individual who may access a computer system, or all staff within a company’s technology department.
Record Keeping If an employer relies on any of the above exemptions to obtain consumer credit history information, the guidance recommends maintaining an “exemption log” that outlines specific information as to the claimed exemption, why it applies, the names and contact information of individuals considered for the exempted position, job duties and qualifications of the exempted position, a copy of the individual’s credit history, and how the credit history was obtained and used in the employment action. Employers should retain a copy of the exemption log for a five (5) year period and will need to provide a copy to the NYCCHR upon request. Penalties The guidance emphasizes how seriously the NYCCHR will take alleged violations of the SCDEA. Civil penalties of up to $125,000 or up to $250,000 for willful, wanton or malicious conduct violations will be imposed taking into account the severity of the violation, the employer’s size, and actual or constructive knowledge of the SCDEA. All penalties imposed are in addition to other remedies available to individuals such as back and front pay, and compensatory and punitive damages. Thus, non-compliance with the SCDEA can prove quite costly for employers. In addition to the guidance, the NYCCHR has published Frequently Asked Questions, a Statement from NYCCHR CommissionerCarmelyn Malalis and other links for employers and employees/job seekers to help further understanding and compliance with the Stop Credit Discrimination in Employment Act.