Credit History in Employment: Michigan Laws & Your Rights

The Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., is the primary federal law regulating employer access to credit reports. Under 15 U.S.C. § 1681b(b)(3), employers may obtain consumer credit reports for employment purposes only if: (1) they have a permissible purpose, (2) they disclose in writing that a consumer report will be obtained, and (3) they obtain the applicant's or employee's written authorization before requesting it. The FCRA defines permissible purposes as positions involving access to financial accounts, trade secrets, or positions requiring a security clearance.

The Equal Employment Opportunity Commission (EEOC) enforces the FCRA in the employment context. While the FCRA does not explicitly prohibit credit checks, the EEOC takes the position that using credit information in hiring decisions can have a disparate impact on protected classes, particularly minorities and lower-income individuals. Under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e, if credit checks disproportionately exclude applicants from a protected class and are not job-related and consistent with business necessity, they may constitute unlawful discrimination.

If an employer takes adverse action based on information in a credit report, the employer must provide the applicant or employee with an adverse action notice under 15 U.S.C. § 1681m, including the name and contact information of the credit reporting agency, notice of the applicant's right to obtain a free copy of the report, and notice of the right to dispute the accuracy of information. Remedies under the FCRA include damages for violations, attorney's fees, and in cases of willful noncompliance, punitive damages up to $1,000 plus actual damages.

Michigan has no state law specifically restricting or regulating employer use of credit checks beyond the federal requirements of the Fair Credit Reporting Act. Therefore, Michigan employers are governed entirely by federal FCRA standards in their ability to obtain and use credit reports for employment decisions. Under Michigan common law and state civil rights statutes, employers must still comply with the Michigan Elliott-Larsen Civil Rights Act (Michigan Compiled Laws § 37.2702), which prohibits discrimination based on religion, race, color, national origin, age, sex, height, weight, or marital status.

While Michigan does not have a state-specific prohibition on credit checks, the state has recognized that discriminatory use of credit information can violate state civil rights law if it targets a protected class. Employers in Michigan are subject to the same disparate impact analysis as employers nationwide: if a credit check policy screens out applicants from protected groups at a significantly higher rate than others, and the policy is not strictly job-related and consistent with business necessity, it may violate both federal Title VII and Michigan state civil rights law.

Michigan employers are required to comply with all federal FCRA disclosure and consent requirements. They must provide written notice that a consumer report will be obtained, obtain written authorization from the applicant or employee, and must provide an adverse action notice if a credit report leads to a negative employment decision. The Michigan Attorney General's Office can investigate complaints involving deceptive or unfair practices under the Michigan Consumer Protection Act (Michigan Compiled Laws § 445.903) if credit checks are used unfairly or without proper disclosure.

Unlike some states (such as California, Connecticut, and New York), Michigan has not imposed additional restrictions on credit checks such as limiting them to specific job categories, requiring a business necessity showing, or restricting their use for applicants with poor credit due to financial hardship. Therefore, Michigan employers have broader latitude to obtain and use credit reports than employers in states with enhanced protections, provided they comply with the baseline FCRA requirements and do not use credit checks as a proxy for discrimination.

The FCRA permits credit checks without individual written consent only in limited circumstances not typically applicable to employment: existing customer relationships, court order, or legitimate business need without intent to adversely affect the consumer. In the employment context, written consent is mandatory. Employers may not conduct credit checks on applicants or employees in Michigan if no written authorization has been obtained, with no exceptions.

A critical exception exists when credit checks are used as a pretext for discrimination. If an employer claims a credit check is job-related but actually uses it to screen out members of a protected class (race, color, religion, sex, national origin, age, or disability under federal law; or religion, race, color, national origin, age, sex, height, weight, or marital status under Michigan state law), the employer violates civil rights law even if the credit check process itself complies with FCRA procedural requirements.

Employers are not required to conduct credit checks at all. If an employer does not obtain credit reports, FCRA compliance is irrelevant. However, if an employer establishes a policy to obtain credit reports for a job category, the policy must be applied consistently and cannot be applied selectively to certain applicants based on protected characteristics.

Small employers with fewer than 15 employees are exempt from Title VII of the Civil Rights Act of 1964, but they remain subject to the FCRA if they obtain credit reports. Additionally, the FCRA defines certain positions where credit checks may be particularly relevant: positions involving access to financial accounts or trade secrets, positions requiring security clearances, or positions of trust. However, the EEOC maintains that even in these positions, if the credit check policy screens out protected classes at a substantially higher rate, the employer must demonstrate job-relatedness and business necessity.

Bankruptcy information cannot be used as a standalone basis for adverse employment action in Michigan, as it is protected under federal law, though bankruptcy may appear on credit reports. Employers must be cautious not to use bankruptcy status as the sole reason for employment decisions.

Step 1: Document the Credit Check Violation — Gather and preserve all documentation related to the credit check process. Save copies of any written notices stating that a credit report would be obtained, your signed authorization form (or note if no written authorization was requested), any adverse action notices received, and correspondence with the employer or hiring agency. Keep records of the dates and times of all communications. Take screenshots of online job applications if they contain credit check language. Obtain a copy of your actual credit report from the credit reporting agency to identify what information was reported. Request and retain any written communications from the employer regarding the hiring or employment decision.

Step 2: Attempt Internal Complaint and Resolution — Many employers have internal HR complaint procedures. If the employer has an HR department, file a formal written complaint documenting: (1) the date you learned the employer would obtain a credit report, (2) whether you received written notice and signed written authorization, (3) the date the credit report was obtained, (4) any adverse employment decision made, (5) whether you received an adverse action notice, and (6) the specific harm (denied hire, termination, denied promotion). Provide this complaint in writing and request a response within 10 business days. Keep a copy for your records. While this step is not legally required, it creates a paper trail and may prompt the employer to correct the violation voluntarily. Request written confirmation of the employer's response.

Step 3: File a Charge with the EEOC or Michigan Department of Civil Rights — In Michigan, you may file with either the federal Equal Employment Opportunity Commission (EEOC) or the Michigan Department of Civil Rights (MDCR); both agencies have a work-sharing agreement. You have 300 days from the date of the alleged violation to file (extended from the federal 180-day limit because Michigan has a deferral agency). File online at www.eeoc.gov or by mail at the EEOC Detroit Area Office, 477 Michigan Avenue, Room 865, Detroit, MI 48226, or phone 1-800-669-4000. Alternatively, file with MDCR at 110 West Michigan Avenue, Suite 800, Lansing, MI 48933, phone 517-335-3165, or online at www.michigan.gov/mdcr. Your charge must include: (1) your name and contact information, (2) the employer's name, address, and size, (3) date of the alleged violation, (4) description of what happened, (5) whether the credit check was used to make an adverse employment decision, and (6) whether any protected characteristic was involved (if discrimination is also alleged). Include copies of the authorization form (or note if none was provided), the adverse action notice, and any communications from the employer.

Step 4: Understand the Investigation Process — After filing, the EEOC or MDCR will send you a charge receipt and assign an investigator. The agency will notify the employer and request a written response within a specified period (typically 30-60 days). The investigator will review the employer's policies, obtain a copy of the credit report that was pulled, and determine whether the employer obtained written authorization before requesting it, whether an adverse action notice was provided, and whether the credit check was used as a pretext for discrimination. The investigation typically takes 60-120 days but can take longer. You may be contacted by the investigator for additional information. Do not sign any settlement agreements without consulting an attorney. The agency will issue a finding of probable cause or no probable cause; if no probable cause is found, you may request a Right to Sue letter to file a private lawsuit within 90 days.

Step 5: Consult an Employment Attorney and Evaluate Legal Options — If the agency finds probable cause or if you receive a Right to Sue letter, consult an employment attorney licensed in Michigan before the 90-day Right to Sue deadline expires. An attorney will evaluate: (1) whether the FCRA was violated (written authorization not obtained or adverse action notice not provided), (2) whether civil rights law was violated (credit check used as pretext for discrimination), and (3) potential damages (actual damages, lost wages, emotional distress, and in FCRA willful violation cases, punitive damages up to $1,000 per violation plus attorney's fees). Many employment attorneys work on contingency in FCRA and civil rights cases. You may also file a private FCRA lawsuit directly in federal district court without exhausting the EEOC process, within 2 years of the violation (or 3 years if willful). An attorney can file either an administrative complaint and Right to Sue lawsuit, or a direct private lawsuit, or both, depending on the facts.