Congress Further Regulates Consumer Credit

March 2005

There has been a recent change in federal law administered by the Federal Trade Commission that permits every citizen to obtain one free copy of their credit reports every twelve months.  Eligibility for free annual credit reports is determined by the requesting individual’s state of residence.  For Ohio and Indiana, the free reports became available on March 1, 2005.  For Kentucky and Tennessee, the reports become available on June 1, 2005.  To request your own credit report or to inquire about availability in other states, go to


Employers should keep in mind that issues may arise when they make employment decisions based upon their employees’ financial condition or credit information.  An employer utilizing a credit check for employment purposes is required to comply with the Fair Credit Reporting Act (“FCRA”).  The FCRA requires employers: (1) to provide certain disclosures to and to obtain authorizations from the applicant or employee before receiving consumer reports or investigative consumer reports for employment purposes; (2) to make various certifications to the “consumer reporting agency” conducting the investigation; and (3) to provide certain notices to the applicant or employee before and after an “adverse action” is taken because of a consumer report.

It is important to note that these FCRA requirements apply only where an employer hires a third party to conduct the inquiries into the background of an applicant or employee.  If the employer conducts its own investigation, then the FCRA does not apply.  However, employers utilizing employment agencies must satisfy the FCRA’s requirements and should verify that the employment agency is doing the same.


Employers should also be mindful of the legal issues presented by wage garnishments.  The Consumer Credit Protection Act (“CCPA”) limits the amount of an employee’s earnings that may be garnisheed and protects employees from being discharged if their pay is garnisheed for only one debt.  An employer may not discharge an employee because of a single debt, regardless of the number of garnishment proceedings brought to collect that debt.  The CCPA does not prohibit discharge, however, where an employee’s wages are separately garnisheed for two (2) or more debts.  Employers who wish to discharge employees for excessive garnishments, i.e. garnishments for more than one (1) debt, should consider adopting a written policy on excessive garnishments and apply it in a non-discriminatory manner.

Ohio and Kentucky incorporate the CCPA provisions on the amounts that may be garnisheed, while Indiana and Tennessee may provide for smaller garnishments in certain circumstances.  All four states have laws that prohibit discharge where wages are garnisheed for child support. 


Finally, employers should be very careful when making employment decisions based upon an employee’s filing for bankruptcy.  Federal law prohibits an employer from discriminating against an employee solely because the employee filed for bankruptcy.  Although some courts have recognized an exception to this rule when the employee’s bankruptcy impacts attendance or job performance, this exception is very narrow and should not be relied upon without consulting counsel.


Frost Brown Todd LLC can help you comply with the various laws and regulations outlined in this Advisory.  Please feel free to contact any of attorneys in the Labor and Employment Department to request assistance in implementing the notices, disclosures, and policies outlined or to answer any questions you have concerning this Advisory.

Additional Documents: