Should employers be barred from using credit reports in hiring?

Job-hunters are increasingly being asked to agree to allow potential employers to view their personal credit information, a development that Sen. Elizabeth Warren says is unfairly keeping people out of the job market who've had financial setbacks or have reports that contain inaccurate information.

The Massachusetts Democrat today introduced The Equal Opportunity for All Act in Congress, which would outlaw such credit checks in many cases except in areas such as national security. Warren told reporters in a conference call sponsored by the Demos Foundation, a liberal think-tank, that the legislation was long overdue.

"This is about basic fairness," said the first-term legislator, adding that many people have had their credit records tarnished during the recent economic downturn. "There is little to no evidence of any correlation between job performance and a credit score."

  The bill is co-sponsored by by Sens. Patrick Leahy, D.-Vt., Edward Markey, D-Mass., Sherrod Brown, D.-Ohio, Jeanne Sheehan, D.-N.H., and Richard Blumenthal, D-Conn.  

One reason Warren and her supporters oppose the practice of vetting job candidates' credit record is that many people were hurt during the housing crash and ensuing recession through no fault of their own. Minorities were particularly targeted by predatory lenders during the subprime boom, according to Nancy Zirkin of the Leadership Conference on Civil and Human Rights. These consumers were "frequently steered in to high interest loans even though they could have qualified for loans with better terms," she said.

"The use of personal credit history to screen job applicants illegitimately obstructs access to employment, placing an unnecessary obstacle in the path of job seekers who are often already disadvantaged by racial discrimination, disability status, lack of health coverage, unemployment and other economic challenges," wrote Amy Traub, a senior policy analyst with Demos, in a research brief

Bad credit also often stems from extended periods of unemployment, as well as from high levels of medical debt and lack of health insurance, according to Demos.

Business groups, such as the Society for Human Resources Management Consumer Data Industry Association (CDIA), the trade group which represents the credit reporting agencies, and the Society of Human Resources Management (SHRM) argue that businesses need to run credit reports on potential hires because they could create liabilities for themselves if they failed to take action to prevent a potential fraud or embezzlement.

 Data from the Association of Certified Fraud Examiners provided by the CDIA estimates there are about $1 trillion worth of employee thefts annually, which totals on average more than $175,000 per business. The figure rises to $200,000 for organizations with 100 employees or less.

"The top two red-flag warnings present in these crimes were instances where the fraudster was living beyond his or her financial means or experiencing financial difficulties," wrote CDIA vice president of public affairs Norm Magnuson in an email. "That's important because employee fraud and theft can very well determine whether a small business survives or not."

Credit reports contain publicly available information such as liens and court judgments, along with delinquent payments reported by creditors. They don't contain criminal records, though those are reviewed in separate pre-employment screening. 

Credit reports are one tool used in the hiring process but often not the deciding one, according to Mike Aitken, SHRM's head of government affairs. He adds that employers need to get a person's permission to access their data and will usually allow them to explain any negative information. In fact, an SHRM survey found that 80 percent of employers hired employees with blots on their credit report.

"Keep in mind it's usually not one incident or a series of incidents in a short period of time" that interest employers, Aitken said in an interview. "They are looking at this over a series of years. ... It's a look at the totality of the credit report."


  • Jonathan Berr

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