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

Man s hand filling out an employment application with a ballpoint pen
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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January 04 2014 at 8:54 AM Report abuse rate up rate down Reply

"Todays world" 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
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

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

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

I own several rental properties. Historically, one in three renters had been stinkers. That is to say they are slow on paying me, they don't take care of the property, etc.

About 10 years ago, I started requiring a 700 FICO score for any applicants. They have to agree to having me run a credit check on them prior to signing a lease.

Haven't had any "stinkers" since then.


December 19 2013 at 4:08 PM Report abuse +2 rate up rate down Reply
2 replies to mrgem's comment

Mrgem, I agree with you 100% a good credit score can tell you alot about a renter.

December 19 2013 at 8:56 PM Report abuse rate up rate down Reply
Alex Denton

Perfect analogy sir. I'm in the process of buying my first investment property and I'm planning on doing the same. Credit scores cant tell you everything about an individual but it is a VERY strong indicator of the level of financial responsibility an individual possesses.

December 20 2013 at 9:56 AM Report abuse rate up rate down Reply

As someone who runs credit checks before hiring, most employers don't turn someone down because of bad credit alone. There are many ways to explain away bad credit...illness, loss of job etc... However, we do look for patterns of irresponsible money management.

December 19 2013 at 3:45 PM Report abuse -2 rate up rate down Reply
2 replies to PeopleSmoks's comment

However this is not talking about renting an apartment or leasing a house. It is about getting a job. I would guess had my grandfather been alive today he would have beaten anyone impuning his honesty.

December 19 2013 at 5:16 PM Report abuse rate up rate down Reply

people ??? when u see an applicant having a bad credit score ,does this make you think he/she would steal from you ?

December 19 2013 at 6:22 PM Report abuse -1 rate up rate down Reply
Danny Boy

All insurance companies should also be banned from runing credit checks

December 19 2013 at 3:44 PM Report abuse +2 rate up rate down Reply

If you have been out of work for a long time your credit will be in the dumper. So now you need a credit check and the company won't hire you because your credit sucks. So you don't get the job and are back in the same place.
What companies really need to do is make the application stricter for ILLEGAL, undocumented immigrants. Using the I9 form will keep these low life scum from taking jobs real American citizens need.

December 19 2013 at 3:40 PM Report abuse +1 rate up rate down Reply
2 replies to petpetdon's comment

all these political harlots have to DO IS enforce the existing laws which somehow WORKED FINE and all before computers etc.

December 19 2013 at 6:28 PM Report abuse rate up rate down Reply
Alex Denton

I would have to disagree with you on that. If you have very strong money management skills your credit will not be impacted in any way. That level of money management guarantees that unless you fall under the most extreme and improbable set of circumstances in regards to losing your job and staying unemployed that your credit will stay as perfect as it was before the job loss. However, that level of money management is so rare (even though it’s easy to achieve if your disciplined) that most Americans believe that it’s impossible to achieve or people are lying when they say that they manage their money that well.

Let me give you my personal situation as an example. I have a credit score that's near perfect. I have been at the job I'm currently employed at for the last 8 years. And that's been my only job in my entire life. So I didn't have any saving from before. My life saving comes from just the last 8 years. I also currently live an upper middle class lifestyle.

I'm not spending hundreds of thousands of dollars a year but my REQUIRED bills would give most people a minor shock. If you bought my house, put 40K cash down (and that’s the minimum you HAVE to bring to be eligible to buy my house under its purchase price). And got the BEST interest rate that you can possible get your mortgage for my house would have a mortgage of approximately $3475/month. That’s not including maintenance, electricity, water and other required bills for a house. So you can just imagine my other required bills.

So let’s say I lost my job tomorrow, I could go without finding another job for 2 years and still not fall behind on ANY of my bills!! This is WITHOUT counting unemployment benefits that I would be eligible for. If I counted unemployment benefits I could last for 2 ½ years! If someone can’t find another job for that long than there’s something wrong with them. It’s all about how you manage and invest your money. Most people don’t even save/invest to be able to pay even 3 months’ worth of bills. This is why a credit score is such a strong indicator of certain characteristics a person possesses.

By the way in the above example I didn’t even count in my retirement. If I counted that I literally could maintain my lifestyle without compromise for 8 years without a job. If I could achieve this much just by my late 20’s with only a high school diploma, being an immigrant whose first language isn’t English, who grew up in poverty because my parents worked minimum wage and without any outside help; what excuse can anyone have?

December 20 2013 at 10:02 AM Report abuse +1 rate up rate down Reply