As of September 1, 2015, in New York City, employers with four or more employees are prohibited from having credit checks run on most employees and applicants. [NYC Admin. Code Sections 8102(29), 8-107(9)(d), (24); Local Law No. 37 (2015).] On September 2, the New York City Commission on Human Rights released enforcement guidance on the new law, and specifically stated that banks will have very limited ability to run credit checks on employees and applicants. [NYC Comm’n on Human Rights, Legal Enforcement Guidance on the Stop Credit Discrimination in Employment Act (“Guidance”) and Stop Credit Discrimination in Employment Act: Frequently Asked Questions (“FAQs”.]

The Guidance began with the viewpoint 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 law contains several narrow exemptions: where the credit check is “required by law, police and peace officers, and high-level positions involving trade secrets, financial authority, and information technology.” The Commission stated that these exemptions do NOT include

Most entry-level, non-salaried employees. [The exemptions] do not include bank tellers, cashiers, salespeople, clerical workers, administrative staff, restaurant and bar workers, and private security employees.

 The law permits employers who are required by state or federal law or regulation or by the Financial Industry Regulatory Authority (“FINRA”) to use a credit check for employment purposes, but the Guidance emphasizes how narrow this exemption can be:

FINRA members are exempt from the [law] when making employment decisions about people who are required to register with FINRA [citing FINRA Rule 1230(b)(6)(B)]. FINRA members must comply with the [law] however 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” or engage solely in clerical or ministerial activities [citing FINRA Rule 1230.06 and FINRA Regulatory Notice 11-33].

As of the date of this interpretive guidance, the only New York law requiring evaluation of a current or potential employee’s consumer credit history applies to licensed mortgage loan originators. 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. 12 U.S.C. § 5104(a)(2)(A).

Other exemptions include positions involving responsibility for funds or assets worth $10,000 or more, and positions involving digital security systems. The employer must be able to prove that an exemption applies by a preponderance of the evidence. The Guidance recommends that employers retain a log of the exemptions, which would include:

  • The claimed exemption;
  • Why the claimed exemption covers the exempted position;
  • The name and contact information of all applicants or employees considered for the exempted position;
  • The job duties of the exempted position;
  • The qualifications necessary to perform the exempted position;
  • A copy of the applicants or employee’s credit history that was obtained pursuant to the claimed exemption;
  • How the credit history was obtained; and
  • How the credit history led to the employment action.

Violations can result in civil penalties of up to $125,000, which can increase to $250,000 for violations that are the result of “willful, wanton or malicious conduct.” The FAQs make clear that these penalties could be levied even if the employer is “honestly mistaken about whether or not an exemption applies”—and penalties can be levied on a consumer reporting agency that provides information to an employer in violation of the law under an aiding or abetting theory.

Any financial institution that may be subject to this law should become familiar with the law, Guidance and FAQs, and incorporate them into its hiring practices and forms to meet these new requirements.