Compass Newsletter - Articles

New Law Restricts Employers' Use of Credit Checks

By Daniel J. Rice
(Summer 2010)

A new Oregon law that took effect on July 1, 2010 in most instances prohibits employers from relying on the credit history of a job applicant or employee to make employment-related decisions regarding that individual. As this article explains, employers who have not done so already should cease requiring a credit check from applicants or otherwise relying on credit histories unless an exception to the new law clearly applies.

The new law is broad in its scope, prohibiting an employer from obtaining or using an applicant's credit history for Aemployment purposes. "Further, an employer may not rely on credit history to Arefuse to hire, discharge, demote, suspend, retaliate, or otherwise discriminate against an applicant or an employee with regard to promotion, compensation or the terms, conditions or privileges of employment."

The only exceptions are in the following scenarios:

  • the employer is a federally insured bank or a credit union;
  • state or federal law requires the employer to use credit history for employment purposes;
  • the employer is a public safety agency; or
  • the credit history is "substantially job-related" and the employer discloses the reason for its use of credit history to the employee or applicant in writing.

For most employers, the only exception that could potentially apply is this last, "substantially job-related" category. Employers should take caution, however, before they rely on this provision to require credit checks. At this point, only limited guidance exists on when someone's credit history will be deemed "substantially job-related," but it is clear that the provision will apply only in narrow circumstances.

The Bureau of Labor and Industries recently promulgated an administrative rule that provides credit history is "substantially job-related" only if (1) the position requires insurance, a surety, or bond and the credit history is necessary for that reason; or (2) "an essential function of the position requires access to financial information not customarily provided in a retail transaction that is not a loan or extension of credit." Under the rule, the position must require access to more financial information than just the exchange of cash, checks, and credit and debit card numbers.

Future court decisions might lead to further clarification of the exception, but no employer wants to be a guinea pig defendant. In the meantime, any employer who plans to rely on the substantially job-related exception should realize that the approach involves some risk.

Further, even if the position does ultimately qualify under the exception, the employer must also provide appropriate written notice to the employee or applicant detailing the reason the employer relied on credit history. This notice under the new law is in addition to the federal Fair Credit Reporting Act's notice, disclosure, and authorization requirements that apply when an employer obtains credit history from a credit bureau. Further, employers that do require credit checks for a certain position must also be sure that they do so consistently; requiring a credit check of some applicants and employees and not others subjects the employer to a potential discrimination lawsuit.

Employers who violate the new law risk significant liability. An employer's unauthorized use of credit history qualifies as an "unlawful employment practice" entitling the aggrieved employee or job applicant to file an administrative complaint with BOLI and a lawsuit. In addition to recovery of any damages or other remedy such as reinstatement, the employee or applicant may also be able to recover attorney fees and other legal costs.


While the credit check law is in its infancy and some questions remain unresolved, businesses that have relied on credit checks to screen applicants or employees must re-evaluate their practice. In many circumstances, the advantage gained from reviewing credit history may now be outweighed by the risk of a lawsuit.