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New York City Commission on Human Rights Issues Important Guidance Regarding New Credit Check Restrictions

September 24, 2015

The New York City Commission on Human Rights (“NYCCHR”) recently issued interpretative enforcement guidance regarding the Stop Credit Discrimination in Employment Act (“SCDEA”).  This new law amends the New York City Human Rights Law to restrict employment credit checks, effective September 3, 2015.  (See Mayor de Blasio Signs a New Law Restricting the Credit Checks That May Be Performed by New York City Employers.) A copy of the NYCCHR’s guidance, as well as FAQs for employers and employees, is available on the NYCCHR’s website, at http://www.nyc.gov/html/cchr/html/coverage/credit-history.shtml.

A.        Key Information Provided By the NYCCHR in Its Recent Guidance.

The NYCCHR’s guidance provides information regarding the NYCCHR’s interpretation and planned enforcement of the SCDEA. For example:

1.    Legislative Intent:  The guidance highlights the New York City Council’s view that consumer credit history is rarely relevant to employment decisions, and consumer reports should not be requested for individuals seeking most positions in New York City.  The guidance also explains that the SCDEA is intended to stop employers from using consumer credit history when making employment decisions — a practice it asserts “has a disproportionately negative effect on unemployed people, low income communities, communities of color, women, domestic violence survivors, families with children, divorced individuals, and those with student loans and/or medical bills.”

2.     Definition of Consumer Reporting Agency:  The guidance explains that, under the SCDEA, the definition of a “consumer reporting agency” (i.e., the party providing a consumer report) will be construed broadly to include any individual or entity that, for monetary fees, dues or on a cooperative non-profit basis, engages in whole or in part in the practice of assembling or evaluating consumer credit information (or other information on consumers for the purpose of furnishing consumer reports or investigative consumer reports to third parties).  Notably, under this definition, there is no requirement that such individual or entity “regularly engage” in this practice.  (By comparison, under the federal and New York State Fair Credit Reporting Acts, the definition of a consumer reporting agency requires that an individual or entity “regularly engage,” in whole or in part, in this practice.) 

3.     Prohibited Actions:  The guidance provides the following examples of conduct that will violate the SCDEA (unless an exemption to the law applies):

a.     Requesting consumer credit history from job applicants or potential or current employees, either orally or in writing;
b.     Requesting or obtaining consumer credit history of a job applicant or potential or current employee from a consumer reporting agency; and
c.     Using consumer credit history in an employment decision or when considering an employment action.

The guidance also emphasizes that all of the above are unlawful discriminatory practices, even if such practices do not lead to an adverse employment action.  Indeed, whether or not an adverse employment action occurred as a result of considering credit history can be considered when determining damages or penalties, but is not relevant for finding liability.

4.     Interpretation and Application of the Law’s Exemptions:  The guidance addresses the specific exemptions set forth in the SCDEA, pursuant to which consumer credit history may still be requested and used.  It explains: (a) that they will be construed narrowly; and (b) to avoid liability under the SCDEA, employers will bear the burden of proving the application of an exemption by a preponderance of the evidence.  The guidance also emphasizes that no exemption applies to an entire employer or industry.  The exemptions apply to positions or roles, not individual applicants or employees.

5.     Notice of Exemptions; Exemption Log:  The guidance explains that employers availing themselves of an exemption to the SCDEA (which would allow them to request and conduct checks of consumer credit history) should:

a.     inform applicants or employees of the claimed exemption; and

b.     keep a record of their use of such exemption for a period of five years from the date an exemption is used.  

The guidance further advises that keeping an “exemption log” (as referenced in (b) above) will help the employer respond to the NYCCHR’s requests for information.  Indeed, employers may be required to share their exemption log with the NYCCHR upon request, and prompt responses to NYCCHR requests may help avoid a NYCCHR-initiated investigation into employment practices.  Pursuant to the guidance, the exemption log should include the following: 

i.     the claimed exemption;

ii.     why the claimed exemption covers the exempted position;

iii.     the name and contact information of all applicants or employees considered for the exempted position;

iv.     the job duties of the exempted position;

v.     the qualifications necessary to perform the exempted position;

vi.     a copy of the applicant’s or employee’s credit history that was obtained pursuant to the claimed exemption;

vii.     how the credit history was obtained; and

viii.     how the credit history led to the employment action.

6. Clarification of Specific Exemptions:  The guidance also clarifies the various exemptions in the SCDEA (pursuant to which an employer can still request and use consumer credit history).  For example, with respect to private employers:

a.     Required by Law Exemption/FINRA Exemption:  Under the SCDEA, an employer is exempt if it is required by state or federal law or regulations or by a self-regulatory organization as defined in Section 3(a)(26) of the Securities Exchange Act of 1934 (e.g., FINRA) to use an individual's consumer credit history for employment purposes.  The guidance now clarifies that FINRA members are exempt from the SCDEA’s restrictions when making employment decisions about people who are required to register with FINRA.  FINRA members must, however, comply with the SCDEA when making employment decisions regarding people who are not required to register with FINRA.  These individuals perform functions that are supportive of, or ancillary or advisory to, “covered functions” (see FINRA Rule 1230(b)(6)(B)) or engage solely in clerical or ministerial activities.  The guidance also notes that, as of the date of the guidance, the only New York law requiring the evaluation of a current or potential employee’s consumer credit history applies to licensed mortgage loan originators.  (See N.Y. Bank. L. § 559-d(9).)  This law was enacted to comply with the requirements of the federal SAFE Mortgage Licensing Act of 2008.  (See 12 U.S.C. § 5104(a)(2)(A).)

b.     Bonded Employee Exemption.  The SCDEA provides an exemption for a position in which an employee is required to be bonded under New York City, state or federal law.  The guidance clarifies that, in order for this exemption to apply, such bonding must be legally required for the specific position and not simply permitted by statute.  The guidance also provides the following examples of positions that must be bonded: Bonded Carriers for U.S. Customs, 19 C.F.R. § 112.23; Harbor Pilot, N.Y. Nav. L. § 93; Pawnbrokers, N.Y. Gen. Bus. L. § 41; Ticket Sellers & Resellers, N.Y. Arts & Cult. Aff. L. §§ 25.15, 25.07; Auctioneers, N.Y. City Admin. Code § 20-279; and Tow Truck Drivers, § 20-499.

c.     Security Clearance Exemption.  The SCDEA provides an exemption for positions in which an employee is required to possess security clearance under federal law or the law of any state.  The guidance explains that this exception only applies when the review of consumer credit history will be done by the federal or state government as part of evaluating a person for security clearance, and that security clearance is legally required for the person to fulfill the job duties.  Indeed, for this purpose, having “security clearance” means the ability to access classified information, and does not include any other vetting process utilized by a government agency.

d.     Trade Secret Exemption.  The SCDEA also provides an exemption for those applying for or holding a non-clerical position having regular access to trade secrets, intelligence information or national security information.  Trade secrets, intelligence information and national security information are all defined in the SCDEA.  The guidance emphasizes that each of these definitions will be construed narrowly.  For example, “trade secrets” will not include information such as recipes, formulas, customer lists, processes, and other information regularly collected in the course of business or regularly used by entry-level and non-salaried employees and supervisors or managers of such employees.  Similarly, positions having regular access to intelligence information will be narrowly construed to include those law enforcement roles that must routinely utilize intelligence information.  Additionally, positions having regular access to national security information shall be narrowly construed to include those government or government contractor roles that require high-level security clearances.  Indeed, the guidance explains that the intelligence and national security exemptions encompass those few occupations not already subject to exemptions for police and peace officers or where credit checks are required by law.

e.     Positions With Certain Signatory Authority or Fiduciary Responsibility Regarding Financial Agreements.  The SCDEA provides an exemption for positions having signatory authority over third party funds or assets valued at $10,000 or more, or that involve a fiduciary responsibility to the employer with the authority to enter financial agreements valued at $10,000 or more on behalf of the employer.  The guidance explains that:  (i) in general, this exemption includes only executive-level positions with financial control over a company, including, but not limited to, Chief Financial Officers and Chief Operations Officers; and (ii) “[t]his exemption does not include all staff in a finance department."

f.     Positions Allowing Modification of Digital Security Systems.  The SCDEA provides an exemption for positions with regular duties that allow the employee to modify digital security systems established to prevent the unauthorized use of the employer’s or client’s networks or databases.  The guidance explains that this exemption includes positions at the executive level, including, but not limited to, Chief Technology Officer or a senior information technology executive who controls access to all parts of a company’s computer system. The guidance also clarifies that the exemption does not include any person who may access a computer system or network available to employees, “nor does it include all staff in an information technology department."

7.     Penalties for Administrative Actions:  The guidance also emphasizes that the NYCCHR takes seriously the new law’s prohibitions against asking about or using consumer credit history for employment purposes.  Indeed, the NYCCHR will impose civil penalties up to $125,000 for violations, and up to $250,000 for violations that are the result of willful, wanton or malicious conduct.  The amount of a civil penalty will be guided by the following factors, among others:  (a) the severity of the violation; (b) the existence of subsequent violations; (c) the employer’s size, considering both the total number of employees and its revenue; and (d) the employer’s actual or constructive knowledge of the new law.  The guidance also explains that these penalties are in addition to the other remedies available to people who successfully resolve or prevail on claims under the New York City Human Rights Law, including, but not limited to, back and front pay, along with compensatory and punitive damages and attorneys' fees.

B.        Next Steps.

New York City employers should review their background check procedures to ensure that they are not requesting or using an individual’s consumer credit history for employment purposes unless one of the exemptions applies to a specific position.  Employers that are planning to utilize an exemption to request or use consumer credit history checks for certain positions should:

Please do not hesitate to contact any of our attorneys if you have any questions or would like assistance developing a plan to comply with the SCDEA’s requirements.