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Why Arguments Against the NYC Credit Checks Ban Fall Short

Amy Traub

The New York Times editorial was unequivocal: “the [New York City] Council and Mayor Bill de Blasio should unite behind this worthwhile bill” to ban the discriminatory practice of employment credit checks. After all, as the Times pointed out, “The worst of the recession is behind us, but the damage lives on for millions of Americans who are hobbled by bad credit… Does membership in the club of beleaguered borrowers inevitably make someone a risky hire or an unreliable employee? Hardly. Does it justify the increasingly common practice of employers using credit checks to reject prospective hires? No.”

Therefore: support the bill, and don’t weaken it by adding exceptions and loopholes as other states have done.

But if it were that easy, New York would have passed the law long ago. Instead, opposition to the legislation has surfaced from the corporate lobby. In response to the Times editorial, Kathryn Wylde, leader of the city’s most powerful business group, penned a letter to the editor acknowledging “prejudice that can disadvantage certain job seekers” but insisting that the exemptions that have undermined so many state laws ought to be added in New York City as well. Yet Wylde’s case doesn’t stand up to scrutiny

First, Wylde asks readers to consider “the growing threats of identity theft and cyber-fraud that make background checks for certain highly sensitive positions more necessary than ever.” She is correct that identity theft is relevant to the debate over employment credit checks, but not for the reason mentioned: in fact, identity theft is one reason why the credit reports employers use to check credit history so often contain incorrect information, frequently without the job applicant even being aware of the problem. The growth of identity theft makes credit reports even more unreliable for employers than they would otherwise be. The notorious difficulty correcting the errors and misrepresentations caused by identity theft make the problem still more severe.

Yet the argument that fraud and other forms of employee misconduct make credit checks advisable is flawed for another reason. As I’ve pointed out before, it is rooted in the mistaken premise that reviewing a job applicant's personal credit report can predict whether someone is likely to steal. Yet despite the prevalence of employment credit checks, no research has ever shown that reviewing job applicants’ credit history successfully produces a more honest or reliable workforce that is less likely to engage in crimes like identity theft or cyber-fraud. Instead, conducting credit checks to screen new hires may produce a false sense of security of security for employers.

Wylde calls for city lawmakers to adopt “the common-sense exemptions for jobs that could expose consumers and employers to particular risks.” I explored each of these exemptions, none of which are grounded in empirical facts or research, in a recent open memo to policymakers. Read it here.

Wyde notes that “use of credit checks is… regulated at the federal level.” The federal Fair Credit Reporting Act does indeed regulate the use of credit checks—permitting them for employment purposes while also leaving room for state and local governments to enact their own stronger protections for employees and job seekers. That’s exactly what New York City commendably aims to do.

Finally, consider Wylde’s point that credit checks are “highly targeted” and that “standard employer practice is to conduct checks only for sensitive positions.” What might these “sensitive positions” be? A quick look at recent New York City job listings on Craigslist shows credit checks are a requirement for jobs such as washing dishes and mopping floors at a restaurant, working as a home health aide, or office assistant, and being employed as a personal driver or computer operator. Major national retailers such as Victoria’s Secret and Home Depot regularly run credit checks when hiring for entry level sales associates. All of these positions may appear “sensitive” to employers convinced that someone with good credit will be less likely to steal, but given that checking credit has not been shown to reduce employee misconduct, the breadth of positions simply illustrates why so many state laws have been completed gutted by loopholes and exemptions.

Credit reports can have a discriminatory impact on people of color, people with disabilities, and survivors of domestic abuse and set up new barriers to employment for New Yorkers who are out of work. None of the points marshalled by Kathryn Wylde, or the lobbist for the credit reporting industry group who commented on my Huffington Post article, offer convincing arguments or evidence to the contrary. 

The truth is, credit reports—a tool originally developed for lenders determining who to lend to and on what terms—have no relevance for hiring or employment.