End Employment Credit Checks

With 10.9 million Americans still out of work and 1.3 million of them now on the verge of losing all jobless aid, the barriers that keep people from finding a job loom larger than ever. One barrier in particular stands out as especially unfair and unreasonable – the common practice of reviewing a job applicant’s personal credit history when hiring.

There is little evidence that personal credit history contains relevant information about an applicant’s future job performance.

According to human resources surveys, nearly half of all employers now conduct credit checks as part of their hiring process. Yet there is little basis for this practice: while poor credit history may reveal the medical debts accrued through a child’s illness, the difficulty paying bills during a long stint of unemployment, or the financial devastation of a nasty divorce, there is little evidence that personal credit history contains relevant information about an applicant’s future job performance.  This lack of validity has not stopped the credit reporting industry from aggressively selling employers a product designed to help lenders evaluate the risks associated with making a loan.

The potential for employment credit checks to perpetuate racial discrimination is especially troubling. According to research from the Federal Trade Commission, the Federal Reserve Board, and other investigators, households of color are disproportionately likely to struggle with poor credit.  Predatory lending that continues to target communities of color, as well as the enduring impact of racial discrimination may contribute to racial disparities in credit. The result is that when credit is then used a factor in determining who is hired for a job, it can become an unintentional new channel of racial discrimination.

The potential for employment credit checks to perpetuate racial discrimination is especially troubling.

But employment credit checks threaten the job prospects of an even broader number of Americans: people with substantial medical bills, difficulty paying off college loans, or debts accrued while they or someone else in their household were out of work all face a second layer of disadvantage when their financial challenges become a reason to deny them jobs. Victims of identity theft – or of the errors that plague as many as one in every five credit reports – can similarly find themselves shut out of employment opportunities as a result.

Employment credit checks also threaten the privacy of job applicants and employees. Many employers emphasize that they give job applicants the opportunity “explain” any flaws in their credit history. Yet more than half of the debts reported by collection agencies are medical bills, obliging people to expose the details of a medical condition just to get a job. Victims of domestic violence, who commonly have their credit deliberately ruined by their abuser, may be forced to make particularly painful disclosures.

The Equal Employment for All Act, introduced last week in the U.S. Senate, would prohibit employers from using personal credit history to screen job applicants or employees for most positions. The bill’s main sponsor, Senator Elizabeth Warren, describes the use of credit information in employment as just another way the system seems rigged against ordinary Americans, preventing people from getting back on their feet after a financial setback.

Neither the bad economy nor personal misfortune should become a reason to shut someone out of a job for which they are otherwise well-qualified. The Equal Employment for All Act is needed to stop to the unfair and unwarranted use of credit history in employment.