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Congress, States, & Cities Need to Act on Employment Credit Checks

Ben Peck

Today, Vice President Biden and others from the Obama administration, are meeting with human-resource executives from companies that are part of the president’s effort to address the problem of long-term unemployment, including Citigroup Inc., CVS Caremark Corp. and Boeing Co. They will discuss impediments now in the way of hiring the long-term unemployed and what they are doing to address those impediments.

This meeting is part of an ongoing effort by the administration to address the problem of long-term unemployment.  As part of this effort, the White House has engaged a group of America’s largest businesses. The companies have agreed to adopt a set of best practices for recruiting and hiring the long-term unemployed. Deloitte Consulting Services has prepared a handbook to guide those employers. 

Also today, the White House announced plans to make it easier for the long-term unemployed to find a job with the nation’s largest employer, the federal government. 

The administration’s actions are a good first step towards addressing the thorny problem of long-term unemployment. While the press has been reporting “encouraging signs of economic recovery,” for all too many Americans the “recovery” has not reached them. Most recent figures indicate that over a third of the nine million people who are unemployed have not been able to find work for more than six months. 

One barrier to employment for the long-term unemployed that Demos’ research has found to be especially significant is the widespread use of credit checks in the hiring process.

Demos’ research has documented the ways in which the use of credit history in hiring acts as a barrier to employment and may lead to discriminatory hiring practices, particularly for people of color and the long-term unemployed. Drawing on data from Demos’ National Survey on Credit Card Debt in Low- and Middle-Income Households, our report Discredited: How Employment Credit Checks Keep Qualified Workers Out of A Job documents that among low- and middle-income households with credit card debt, one out of four of the unemployed report being asked by a potential employer to submit to a credit check as a condition of employment and one out of seven report that they were not hired because of their credit. 

In its public statements, the administration has noted that credit checks do indeed present a barrier to employment for the long-term unemployed.  Earlier today, Labor Secretary Perez noted that, “Employers learned that credit checks were ‘not good HR policy.’ .  .  . “They [realized they] were leaving good employees on the table.” While the White House has recognized that credit checks are a barrier to employment, the White House could and should have gone further in condemning the use of credit checks. 

While the manual produced by Deloitte and the Rockefeller Foundation is not a White House publication, the limitations of this “best practices” manual reflect the limitation of the White House’s approach.  Instead of condemning the use of credit checks by private employers, the manual lays out the best ways for employers to use credit checks to minimize their negative impact.  These include reducing the number of positions subject to credit checks, reserving the use of credit checks for the end of the recruitment process, and allowing candidates the opportunity to explain any issues in their credit histories.  Given that there is no evidence that conducting employment credit checks leads to a more honest or reliable workforce, the White House could and should have urged employers to reject the use of credit checks completely.

According to the most recent survey by the Society for Human Resource Management, over half of all employers do not use credit checks (53%).  So, many private sector firms have found it possible to recruit dependable staff without resorting to credit checks. One employer that has very publicly rejected the use of credit checks, Frontier Communications, is expected to participate in the White House’s roundtable discussion today.  Earlier this month, the New York Times editorialized in support of legislation in New York City that would ban the use of credit checks in employment. 

The limitations of what the White House did today, point to the shortcomings of what can be achieved without comprehensive legislation that would ban the use of credit checks by all employers. That is why there is an urgent need for Congress to pass “The Equal Employment for All Act,” which has been introduced in the Senate and House by Senator Elizabeth Warren (D-MA) and Representative Steve Cohen (D-TN). This legislation would ban the use of credit checks for all but a minority of positions. At the same time, states and cities can move forward in enacting their own bans on this discriminatory practice.