Vermont Testimony: Against Employment Credit Checks by Amy Traub

Thank you, members of the Committee for this opportunity to present testimony. I am a Senior Policy Analyst in the Economic Opportunity Program at Dēmos. We are a national, non-partisan research and advocacy organization, established in 2000 and headquartered in New York City. The Dēmos Economic Opportunity Program works to achieve a more equitable economy with opportunity for all. 

Credit checks increasingly used for employment – despite a lack of evidence for their validity

As the bill’s findings note, six out of ten American employers now look at a job applicant’s credit report when hiring for some or all positions.[1] A brief, informal survey of job listings throughout the state of Vermont reveals that employers today are requiring credit checks for positions as diverse as doing maintenance work, being an office assistant, working as a delivery driver, and supervising a stockroom.[2]

Employment credit checks have become commonplace because employers are looking for a way to predict if a potential employee will be honest, if they will handle money responsibly, if they are likely to steal or commit fraud.[3] For-profit credit reporting agencies take advantage of these concerns to market credit reports to employers. However, reviewing the social science research on this issue, I have found no credible evidence that credit reports reveal this information.[4]  In fact, a spokesperson for one of the major credit reporting agencies has admitted that he has seen no evidence to support the use of credit checks for employment purposes.[5]

It’s important to emphasize that credit reports evolved as a means for lenders to evaluate whether someone would be a good credit risk based on their past payment history. These reports detail whether someone has fallen behind on their bills, whether they have had to declare bankruptcy, and if they’ve faced foreclosure.  In fact, credit reports can be a good indicator of the tremendous economic stresses that are facing Vermont families during these difficult economic times.  Demos’ research on credit card debt among middle- and low-income households has found that most indebted families go into debt to pay for basic expenses: groceries, utilities, child care, and health care. In a 2008 survey we commissioned of low-and-moderate income households, 37% of credit card indebted families had used their credit cards to pay for basic expenses and 52% had used them to pay for medical care in the past year.[6] Simply put, Americans are borrowing to make ends meet.

You can often see the effects of that economic hardship in a credit report. What a credit report will not reveal is how well applicants are likely to perform on the job. The use of credit reports for employment purposes has no validity – and it’s our position that there is no job category in which they have proven to be useful or reliable.

Employment credit checks are discriminatory

In addition to their irrelevance, employment credit checks are also discriminatory, and I urge the committee to think of SB 3 as a piece of civil rights legislation. The reality is that employment credit checks disproportionately impact Latinos and African Americans, whose credit histories have suffered as a result of discrimination in lending, housing and employment itself.[7]  Employment credit checks can perpetuate and amplify this historic injustice. For this reason organizations including the Lawyers Committee for Civil Rights, National Council of La Raza, and the NAACP have taken repeated stands against employment credit checks.[8] The Equal Employment Opportunity Commission has sued two employers for the discriminatory impact of their use of credit reports as a hiring tool, demonstrating that credit reports may introduce legal liability to employers.

Credit reports are often inaccurate, and errors are difficult to fix

Another critical consideration is the accuracy of credit reports. A 2008 Federal Trade Commission (FTC)-sponsored pilot study found that about 31 percent of people who reviewed their credit report found errors that they wanted to dispute.[9] A 2011 study funded by the credit reporting industry itself found that 19.2 percent of people who reviewed their credit reports identified information that appeared to be erroneous.[10] Either way, this amounts to tens of millions of Americans whose credit reports contain information that is wholly inaccurate – perhaps someone else’s debts that became mixed up in their file, a mistake in the amount owed, or information wrongly stating that debts are still pending when in fact they were fully paid off.

Many jobseekers are not aware these errors exist, and if they find out, the burden for ensuring credit-report accuracy falls on the individual. If an individual uncovers a potential error in their credit report at a particular agency, the agency is required by law to investigate the matter and report back to the consumer within 35 days. However, as a practical matter, disputing an error can be a time-consuming, nearly impossible three-party negotiation between the credit bureau, the creditor and the individual—a negotiation for which the outcome is ultimately controlled by the sometimes arbitrary decision of the agency. We’ve heard of numerous cases where errors continued to appear on credit reports long after they were supposedly corrected.

Employment credit checks are a violation of privacy

I’d also like to raise the issue of privacy, because that is another concern as we consider employment credit checks. Americans should not have to expose the details a painful divorce or past medical condition just to get a job. Yet because family break-up and medical problems are among the leading reasons that Americans become unable to pay their debts, these deeply personal concerns are often revealed in an employment credit check, particularly if an applicant is asked by a prospective employer to “explain” their imperfect credit history. 

Exemptions are unnecessary

I would like to take a moment to address the exemption in this legislation. As it is currently written, S.43 permits the continued use of employment credit checks for positions for firefighters, police officers, employees of financial institutions, any position that requires a financial fiduciary responsibility, and anyone whose job would involve access to confidential financial information. 

Conclusion

The unwarranted exemption aside, S.42 will remove an unnecessary barrier that prevents qualified Coloradans from getting the work they need. By enacting this bill, the state will join the growing number of jurisdictions – including seven states, from California to Illinois to Connecticut – that have taken action to restrict the use of credit checks in employment. I urge you to pass this legislation. Thank you.