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The Case for Banning Credit Checks in Hiring – and for Cleaning Up the Consumer Reporting Industry

Amy Traub

Employment credit checks illegitimately obstruct access to employment, keeping qualified workers out of jobs they need. It’s an argument Demos has been making for a few years, but the new study we released this week provides additional data to back it up.

Drawing on the findings of our most recent National Survey on Credit Card Debt of Low-and Middle-Income Households, we find that – at least among our survey population of low- and middle-income households carrying credit card debt – employment credit checks are common; people are denied jobs because of their credit; and poor credit is associated with factors most of us wouldn’t consider relevant to how well someone would perform at a new job, including past unemployment by someone in their household, lack of health coverage for someone in their household, and medical debt. Our findings also correspond to past studies which find that people of color are disproportionately likely to report poor credit  and that a not-inconsequential minority of households have serious errors in their credit reports.

The conclusion? With possible exceptions for the kind of national security positions where your childhood friends are interviewed, old diaries are read, bank statements are examined, and travel records are scrutinized, employers should be prohibited from using personal credit history as part of the hiring process. It’s discriminatory, irrelevant, and traps jobs seekers in a nasty catch-22. Employment credit checks should be outlawed. Congressman Steve Cohen’s bill to restrict the practice would be a great start.

Of course, the credit reporting industry – including the Big Three firms Experian, Transunion and Equifax, that collect credit information and develop credit reports and the host of smaller background check companies that aggressively sell credit reports and other information to employers – has an interest in continuing to profit off the sale of credit information to employers. The Big Three have an even greater interest in making the case that personal credit history is relevant to just about every action or transaction Americans undertake in life (from dating to  hospital admissions) since credit reporting “mission creep” helps them sell more products.

So what might the credit reporting industry say in response to our research? Huffington Post reporter Saki Knafo asked the Consumer Data Industry Association – the lobbying arm of the credit reporting industry – for their take:

Norm Magnuson, a spokesman for the Consumer Data Industry Association, questioned the reliability of Demos' information. "Employers don't necessarily tell people we're not hiring you because of bad debts," he said. "There are a lot of reasons they might not hire you."

What’s startling about Magnuson’s reply is that the main federal law governing the use of credit reports, the Fair Credit Reporting Act, in fact requires employers to notify job applicants if their credit played any role in the decision not to hire them. The reality is that the law is almost impossible to enforce, and many employers likely do not comply with their legal obligation to inform job applicants. Still, it’s something else to see a spokesman for the industry blithely admit that his product is frequently used in ways that violate the law.

It’s a powerful sign that the laws meant to protect consumers and job seekers from the misuse of credit information are inadequate. We should ban employment credit checks. But a wider reevaluation of the credit reporting industry is also in order.