Earlier this week, I made the case that the massive data breach at Equifax highlights the need for better regulation and oversight of the credit reporting industry. Today, Senator Elizabeth Warren reintroduced legislation that fills a key part of the regulatory gap: her Equal Employment for All Act will ban the use of personal credit information for employment decisions.
By eliminating employment credit checks, the bill would remove an unfair and discriminatory barrier to economic mobility and security.
Today in the United States, qualified job seekers are turned away from employment because of their personal credit history. Employment credit checks are used by nearly half of all employers as part of the hiring process for numerous jobs, from positions in the retail industry to work as a chef, storage facility manager, graphic designer, nursing assistant, personal trainer, office assistant, or carpenter (just to take a quick look through recent job postings on Craigslist).
In other words, if a consumer’s identity is stolen as a result of the Equifax data breach, victims could find that not only does ruined credit harm their ability to get a loan or qualify for insurance—they could also be denied a job. This is an excellent reason to follow the identity theft protection advice offered by the Consumer Financial Protection Bureau. But it’s also an opportunity to question why an employment credit check is considered valid under any circumstances.
Job seekers whose credit is damaged as a result of medical debt, student loans, a layoff, divorce, predatory lending, or simple error can be shut out of jobs—despite a lack of evidence connecting personal credit history with job performance. The practice has a disparate impact on people of color, who are more likely to have poor credit as a result of predatory lending that continues to target communities of color, as well as the enduring impact of racial discrimination in employment, lending, education, and housing. People with disabilities and survivors of domestic abuse also face discrimination as a result of employment credit checks.
My research finds that poor credit is linked to economic stress: weak credit is correlated with unemployment, lack of health coverage, and the presence of children in a household. By screening out job applicants who have flawed credit, employers are effectively judging a prospective employee on the basis of economic disadvantage, and effectively multiplying that disadvantage.
Employers conduct credit checks because Equifax and other credit reporting firms have aggressively marketed their product as a way to discern a prospective employee’s character or even whether they are likely to commit fraud or steal from an employer. As I noted above, there is scant evidence that personal credit history can reveal any of this. But credit reporting companies aren’t letting the facts get in the way of a lucrative business opportunity. Without regulation like Senator Warren’s Equal Employment for All Act, Equifax and other credit reporting companies will be able to continue cashing in on an ineffective, discriminatory product, and Americans will keep getting shut out of jobs.