Workers' Rights Groups: It's Time to Outlaw Job Applicant Credit Checks

Man s hand filling out an employment application with a ballpoint pen
Alamy
Have you ever applied for a job, only to be told that before the company will consider hiring you, you'll need to consent to a credit check?

So far, only a minority of workers have to submit to this indignity. But according to worker advocacy group The Leadership Conference on Civil and Human Rights, it's a growing trend: 47 percent of employers in the U.S. now require that new hires submit to credit checks when applying for certain positions.

The Leadership Conference is not especially pleased about that. And they intend to do something about it.

On Tuesday, a coalition of 50 advocacy organizations, including the American Association of People with Disabilities, Demos, NAACP, Lawyers' Committee for Civil Rights Under Law, and Service Employees International Union sent a letter to members of the Senate, urging them to co-sponsor a bill that Sen. Elizabeth Warren (D-Mass.) has put forward.

Titled the Equal Employment for All Act, this proposed law would forbid requiring credit checks as a condition of hiring or promoting applicants for "most" positions.

As the letter's signers argue: "In addition to the weak economy, job-seekers today confront another less discussed challenge -- employers that require credit checks as a condition of employment. Not only does this practice discriminate against the long-term unemployed, it has a disparate impact on communities of color and people with disabilities and constitutes an unwarranted invasion into job seekers' personal lives."

A Bigger Problem Than You Realize

How big of an impact does it have? Advocacy group Demos says that "1 in 4 unemployed people from low- and middle-income households with credit card debt" have been asked to submit to a credit check when applying for work.

With 13 million Americans having been thrown out of work by the Great Recession, more and more Americans belong to this category today. And because these applicants are now not in the greatest of situations, financially speaking, Demos reports that "1 in 7 jobseekers with poor credit say they had been told they would not be hired for a position because of their credit history."

American Dreams and Rude Awakenings

The activists point out that this seems like an especially unfair Catch 22, inasmuch as by keeping these applicants out of jobs for which they're otherwise qualified, the practice of credit checking denies them the ability to earn the income to keep up with their bills -- the very thing that would help them pass a credit check in the first place.

Indeed, the practice may be more than unfair. It may already be illegal.

The activists cite a 2007 report by the Federal Reserve Board that found that, for example, "African Americans and Hispanics had considerably lower credit scores than non-Hispanic whites." That smacks of discrimination on its face, and if employers are making hiring and promotion decisions in part based of these lower credit scores, they risk compounding the discrimination.

An Inappropriate Tool

Of course, employers argue that it is never their intention to discriminate. The rationale most often cited to justify checking the credit of new hires, and new promotions, is preventing on-the-job fraud. The worry, say the practice's defenders, is that "employees who are behind on their bills will be more likely to embezzle funds or engage in other criminal activity."

Yet according to the activists, time and again, studies that have attempted to verify this hypothesis have instead refuted it, "fail[ing] to find a link between low credit scores and propensity to commit financial crime at work." In particular, activists cite a 2010 statement by Eric Rosenberg, Director of State Government Relations for credit ratings organization TransUnion, who testified before the Oregon state legislature: "At this point, we don't have any research to show any statistical correlation between what's in somebody's credit report and their job performance or their likelihood to commit fraud."

So as it turns out, running credit checks on employees isn't even helping the employers. One thing's for certain: It's definitely not making job-seekers happy.

Motley Fool contributor Rich Smith has pretty good credit. Yet he's never yet heard an interviewer exclaim: "Hey! What a great credit report! You're hired!"

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94 Comments

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seeker4179

YOU THINK THAT'S UNFAIR ? HOW ABOUT CAR INSURANCE RATES BASED ON CREDIT REPORT.ESPECIALLY IN 300 TO 500 A YR MORE,OR HOW ABOUT YOU PAY MONTHLY FOR INSURANCE AND THEY CHARGE YOU A FINACE RATE FOR THE YR ,EVEN THOUGH YOU HAVE NOT ENTERT THAT TIME PERIOD IS THAT FAIR????

January 04 2014 at 8:54 AM Report abuse rate up rate down Reply
dan_crabtree

"Todays world" ...you are subject to lawsuits galore if you hire any minority reguardless of race..And they know it..

January 03 2014 at 6:19 PM Report abuse rate up rate down Reply
fakeconomics1

But it is two way street --- While your future employer is evaluating your medical and credit profiles, you also need to evaluate your future employer!!

"Did any body sue you for discrimination?"
"Were your convicted of tax fraud?"
"Could you please give us three references from your former employees?"
"Tell us what is the greatest accomplishment of your management in the last two years?"
Would you please tell us your biggest failure in the last three years?"

December 19 2013 at 4:44 PM Report abuse +4 rate up rate down Reply
fakeconomics1

Credit history does not reveal their money management capabilities. Some people just don't want to borrow. I know people who bought their homes and cars with 100% down and credit agencies do not like it.

December 19 2013 at 4:37 PM Report abuse -1 rate up rate down Reply
fakeconomics1

Credit scoring is based on assumptions that you borrow and spend and pay on time your payments. It is a gimmick played by banks and credit agencies.
I know a lot of people who do not want to have any loans--period and they still get bad credit rating because they have not established credit history.

December 19 2013 at 4:34 PM Report abuse +1 rate up rate down Reply
1 reply to fakeconomics1's comment
Alex Denton

They would not have a bad credit history. The people you refer to would have no credit history, which is not the same as having bad credit.

December 20 2013 at 9:45 AM Report abuse -1 rate up rate down Reply
fakeconomics1

Its an irrelevant correlation to job performance. But now a days it has become normal to see crdit profiling and medical profiling.

They also check all your blogs especially your facebook postings and your chats.

December 19 2013 at 4:31 PM Report abuse +2 rate up rate down Reply
2 replies to fakeconomics1's comment
flyingfortresb17

They first have to get your facebook listing and you can refuse that straight out.

December 19 2013 at 5:12 PM Report abuse rate up rate down Reply
setanta54s_back

suppose we haven't facebook etc ?
and how would they know anyway ?
or is HAVING a facebOOk acct now a prerequisite ?

December 19 2013 at 6:19 PM Report abuse +1 rate up rate down Reply
Dr. Cameron

A credit score has not one thing to do if someone is going to be a good employee with a good work ethic. It has not one thing to do with someone being able to get insurance. Folks who only pay cash for everything also have a bad credit score as well. People are punished for being financially responsible.

What I look for in hiring someone is are they a good worker, do they have the background for the position, are they a decent individual with ethical decision-making skills, etc. I do not care your skin color, beliefs, can they pass a drug test & will they sign the ethics clause in their hiring contract, submit to a major criminal background, etc.

What you do off the clock DOES reflect either in a positive way or a negative way on an employer. Does an employer want to find out they have a candidate with a Rx drug problem or alcohol problem when off the clock? No. Does a responsible employer want to hire someone who is a deadbeat parent who is always having the authorities trying to contact them on the job? No.

There are a number of things I, as an employer, would be looking for in looking at a potential job applicant, but someone's credit score isn't one of those things I would be looking at.

December 19 2013 at 4:30 PM Report abuse rate up rate down Reply
1 reply to Dr. Cameron's comment
Alex Denton

Incorrect. People who pay cash only can have excellent credit if they understand how a credit history is established. Without writing an essay, its as simple as acquiring a line of credit such as a credit card and paying it in full every month so you pay no interest (that's the same as paying cash without the inconvenience of carrying around cash). The second part is keeping that credit card open for a long period of time. A good estimate of "long would be around 4-5 years.

I had a credit score well above 750 by just doing this by the time I was 23. I also did the same thing for my wife when she was 21. She literally had no credit history before that. 4 years later she has a score over 750 as well.

December 20 2013 at 9:53 AM Report abuse rate up rate down Reply
meyer1110

UH hello is that nor credit profiling.
If you have been out of work for a while or if your ex husband or wife doesn't make the child or alimony payments or for whatever reason you have had trouble paying your bills ,that does not mean you are going to steal from your employer.
Who wants to work for a company who right out of the box is actually profiling you as a criminal.

December 19 2013 at 4:24 PM Report abuse -1 rate up rate down Reply
Ah Shucks

Running a credit check is a good thing. Why would you want to have someone that has bad credit working or renting from you. Bad mostly means bad hire or renter. Why take the risk??

December 19 2013 at 4:18 PM Report abuse -1 rate up rate down Reply
pfjw

Mpffff.... I have a company credit card with essentially no limit, and considerable discretion in how I use it. You bet, I expected a credit check, and much more investigation during the hiring process.

It is not as if I were handed a shovel and told to "dig there". Were that the case, a credit check might be a little bit intrusive. Otherwise, trust runs both ways - so far I have not been disappointed in my trust that the information I give will not be misused.

December 19 2013 at 4:17 PM Report abuse +2 rate up rate down Reply