The Commission’s guide outlines narrow interpretation and recordkeeping requirements for employers seeking exemptions to the SCDEA, as well as guidance on enforcement and penalties for SCDEA violations.

On September 3, the NYC Commission on Human Rights (the Commission) released its Interpretive Enforcement Guide (the Guide) for the Stop Credit Discrimination in Enforcement Act (SCDEA), which went into effect on that date. The SCDEA makes it an unlawful discriminatory practice for employers to request consumer credit histories or to use them in making employment decisions.

The Guide’s Narrow Interpretation of SCDEA Exceptions

As detailed in our April 2015 LawFlash, “New York City Council Passes Bill Amending Human Rights Law,” certain positions are exempt from the SCDEA. While the Guide does not have the force and effect of law, it provides useful insight into the Commission’s interpretation of the SCDEA (and the very limited scope of its exemptions) and may be persuasive to courts when interpreting the law. In the Guide, the Commission explains that the SCDEA is intended to “be the strongest bill of its type prohibiting discriminatory employment credit checks” and thus the eight exceptions contained therein “are to be interpreted narrowly.” Employers bear the burden of proving by a preponderance of the evidence that they are entitled to claim an exemption.

The SCDEA, according to the Guide, exempts employers required by the Financial Industry Regulatory Authority (FINRA) to use consumer credit history when confirming the completeness and accuracy of an applicant or employee’s disclosures to FINRA or when making employment decisions about individuals required to register with FINRA. This exemption does not extend to employment decisions regarding individuals not required to register with FINRA, including but not limited to those who perform functions that are supportive of (or ancillary or advisory to) those for whom registration is required, or who engage solely in clerical or ministerial activities.^[1]

While the SCDEA also carves out an exception for employers required by state or federal law or regulation to use an individual’s consumer credit history, the Guide notes that “[a]s of the date of this interpretive 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.”

The Guide also makes clear that the SCDEA’s trade secret exemption is based on a narrow definition of “trade secret.” For purposes of the SCDEA, trade secrets do not include proprietary company information such as handbooks, policies, and client and customer mailing lists, nor do they include recipes, formulas, 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.”  

The Guide narrowly interprets the exemption for those with responsibility for funds or assets worth $10,000 or more to cover only executive-level positions with financial control over a company, such as Chief Financial Officers and Chief Operations Officers. It does not address the scope of the exemptions for those responsible for $10,000 or more of third-party funds.

Similarly, the exemption for positions involving digital security systems is interpreted to cover only executive level positions, including Chief Technology Officers and senior information technology executives controlling access to all parts of a computer system or network available to employees.

Recordkeeping Requirements for Claimed Exemptions

When an employer claims an exemption, it must inform the applicant or employee of the claimed exemption and maintain an exemption log for five years from the date the exemption is used.

According to the Guide, the log must include the following:

(1) The claimed exemption 

(2) Why the claimed exemption covers the exempted position

(3) The name and contact information of all applicants or employees considered for the exempted position

(4) The job duties of the exempted position;

(5) The qualifications necessary to perform the exempted position

(6) A copy of the credit history obtained pursuant to the claimed exemption

(7) How the credit history was obtained

(8) How the credit history led to the employment action

Employers should note that they may be required to share this exemption log upon the Commission’s request.

Enforcement

The SCDEA makes each of the following a separate chargeable violation:

(1) Requesting a consumer credit history either orally or in writing

(2) Requesting or obtaining consumer credit history from a consumer reporting agency

(3) Using consumer credit history in an employment decision or when considering an employment action. Thus, under the SCDEA, even if there is no adverse employment action, the employer may still be found liable.

The Commission has the authority to impose civil penalties for violations of the SCDEA of up to $125,000 for routine violations, and up to $250,000 for violations that result from willful, wanton, or malicious conduct.

The Commission, in determining the amount of civil penalties, will take into account

(1) the severity of the violation;

(2) the existence of subsequent violations;

(3) the employer’s size, considering both of the total number of employees and its revenue; and

(4) the employer’s actual or constructive knowledge of the SCDEA.

Individuals who believe that an employer has violated the SCDEA may file a complaint with the Commission’s Law Enforcement Bureau within one year of the allegedly discriminatory act or file a complaint with the New York State Supreme Court within three years of the discriminatory act. In addition to civil penalties detailed below, individuals who successfully bring claims may recover other damages and remedies available to those who successfully resolve or prevail on claims under the New York City Human Rights Law (NYCHRL), including back and front pay and compensatory and punitive damages.

Best Practices

It is important to remember that exemptions apply to positions, not to individual applicants. Therefore, if an employer determines that business needs require that a registered person be hired to fill a position, it should take steps to document that need and the reason for an exemption from the SCDEA. For example, sales assistants are not required to be registered unless they perform certain functions covered by FINRA registration requirements. Therefore, if a member firm determines that a registered applicant is required to fill a sales assistant position, it should document those covered functions that will require registration in the job posting, job description, and the exemption log.

Employers should not rely solely on a third-party administrator or vendor to ensure compliance with the SCDEA. Whether or not a third party is involved, the employer will ultimately be responsible for maintaining an exemption log, justifying exemptions, and informing applications or employees of any claimed exemption. Employers must also remain mindful that federal law (including the Fair Credit Reporting Act) and FINRA Rules (including 3110(e)) may impose additional requirements on employers, even where a position is exempt from the SCDEA.

_{[1]  The Guide, citing to FINRA, Rule 1230(b)(6)(B); FINRA, Rule 1230.06; and FINRA Regulatory Notice 11-33.}