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New York City Should Lead on Banning Credit Discrimination

Amy Traub

Discrimination has no place in New York City.

The City’s Human Rights Law is one of the strongest bodies of civil rights law in the nation, and the City Council and Mayor have taken bold action to update it to address emerging forms of discrimination. So it’s entirely appropriate that New York City is now poised to pass the nation’s strongest law prohibiting employment discrimination against job applicants and current employees based on their personal credit history. And while employment credit checks may look like a relatively new form of discrimination, their effect of disproportionately locking people of color, people with disabilities, and domestic violence survivors out of job opportunities is all too familiar.

At first glance, the prospects for New York City’s bill to stop credit discrimination in employment appear bright. The legislation, sponsored by Councilman Brad Lander, has 39 co-sponsors on the City Council plus the backing of Public Advocate Letitia James. Mayor de Blasio has announced that he supports the concept of the bill.

But the real question is whether this legislation will be enacted in its current, strong form or will – like so many state laws on employment credit checks – be watered down to enable discrimination to continue in a host of different contexts, despite the lack of evidence that reviewing personal credit history can ensure a more trustworthy or reliable workforce for any employer or position. Indeed, the de Blasio Administration has publicly stated that exemptions to weaken the law are under consideration. While it makes sense for lawmakers to consider the experience of other jurisdictions in restricting the use of credit history in employment, the truth is that the exemptions in other state laws are not justified by evidence demonstrating that credit checks are actually valid or useful, or that there is a legitimate reason to open up the exempted positions to the type of discrimination that credit checks invite. Drawing on my recent memo to city policymakers, let’s consider each of the common exemptions found in many state laws on employment credit checks:

Credit checks are not justified for employees handling cash or goods. A number of state laws include exemptions permitting credit checks for employees that handle cash or have access to valuable property. These exemptions are based on the mistaken premise that reviewing a job applicant’s personal credit report can predict whether someone is likely to steal. However, as a spokesperson for TransUnion, one of the major credit reporting companies, admitted to the Oregon State Legislature: “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.” The financial crisis and the Great Recession caused millions of Americans to be laid off from their jobs, see their home values plummet to less than their mortgage debt, and find their savings and retirement accounts decimate—all of which can affect credit history. These are largely factors that are outside an individual’s control and have no reflection on someone’s “moral character” or their propensity to steal.

Credit checks are not justified for employees with access to financial information. The rationale for checking credit when hiring for positions with access to financial or other confidential information is the same as for employees who handle cash – a belief that poor credit can predict whether an employee will misuse information to steal or commit fraud. The credit reporting industry frequently cites the amount of money businesses lose to fraud annually to illustrate the seriousness of the problem. However, as discussed above, there is no evidence that reviewing credit reports is an effective tool to screen out fraud-prone employees.

Credit checks are not justified for management positions. Permitting credit checks for management or supervisory positions puts a ceiling on the advancement of people struggling to pay their bills, regardless of their qualifications. This is particularly troubling given racial disparities in credit quality. A persistent legacy of discriminatory lending, hiring, and housing policies has left people of color with worse credit, on average, than white households. In recent years, historic disparities have been compounded by predatory lending schemes that targeted low-income communities and communities of color, putting them at greater risk of foreclosure and default on loans, further damaging credit. By evaluating prospective employees based on credit, employment credit checks can further extend this injustice. Given the discriminatory impact of employment credit checks, creating exemptions for management or supervisory positions could statutorily create two tiers of job opportunity depending on race and class. In effect, exemptions that permit credit checks for managerial or supervisory positions would keep people who are struggling to pay their bills stuck on the bottom rungs of the job ladder, no matter how skilled they may be.

Credit checks are not justified for law enforcement positions. Despite a lack of evidence that reviewing personal credit history can reveal how responsible, honest, or reliable an applicant will be on the job, many police departments continue to conduct credit checks and reportedly disqualify candidates with poor credit. This is particularly dangerous because using a faulty screening tool such as credit history may provide a false sense of security to law enforcement agencies if they erroneously believe a credit check will help to prevent them from hiring dishonest officers vulnerable to corruption. In addition, racial disparities in credit quality mean that the use of employment credit checks may make it more difficult for law enforcement agencies to hire and promote a diverse police force that reflects the jurisdiction it is policing. As law enforcement agencies across the country continue to face decades-old concerns about sufficient opportunities for people of color to be hired and promoted within their ranks, the use of employment credit checks exacerbates this core civil rights concern.

Credit checks are not justified for employees of financial institutions. Like other exemptions, a carve-out allowing banks and other financial institutions to continue doing credit checks is based on the misconception that someone who has faced financial challenges in their own life will not be a good employee at a financial institution. In fact, financial services is the only specific industry to have been the subject of a rigorous academic study: the research, published in the Psychologist-Manager Journal in 2012 analyzed employees holding jobs falling within a “financial services and collections” job category of a large financial services organization. The study found that information in the credit reports of these employees had no relationship with employee performance or employee terminations for misconduct (or any other negative reason). In other words, credit reports do no predict job performance in a financial services job.

Broad standards-based exceptions are entirely unjustified. The worst categories of exceptions are those that permit credit checks based on broad standards, such as “relevance”, “fiduciary duty” or “substantially job related.” These exceptions are even less justified than exceptions for specific job categories, because they are overly expansive and leave many workers unprotected from the unfairness of employment credit checks.

New York City has an opportunity to lead the nation in a progressive direction by enacting the nation’s strongest law prohibiting credit discrimination. Instead of mimicking weakened state laws, New York should look to Senator Elizabeth Warren’s inspiring Equal Employment for All Act for model legislation that bans credit discrimination without exemptions. In fact, the only major difference between New York City’s current strong bill and Senator Warren’s is that in the current legislative climate, New York’s bill stands a better chance of becoming law.