Job Applicant Credit Checks May Soon Be Banned

Job seekers who think they get a raw deal when employers subject them to credit background checks, and deny them work because of it, finally have a friend in a high place.

Jacqueline Berrien, who became chair of the Equal Employment Opportunity Commission (EEOC) in April, has the practice in her crosshairs. Her main concern is how such screenings adversely impact minorities and the jobless.

"High unemployment has forced an increasing number of people to enter or re-enter the job market," said Berrien during a public meeting on Wednesday to discuss the practice. "As a result, an ever increasing number of job applicants and workers are being exposed to employment screening tools, such as credit checks, that could unfairly exclude them from job opportunities."

The problem with such screenings can be twofold:

  • Many unemployed are hurting financially, and their credit scores can suffer as a result. That creates a no-win scenario for the jobless who need work in order to help get them out of debt.
  • The other issue, and of most concern to the EEOC, is whether such background checks disproportionately impact minorities.

About 60 percent of companies do credit checks on job candidates, according to the Society of Human Resource Management (SHRM). Many employers argue they are an important screening tool.

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In testimony at the EEOC meeting, human resource consultant and SHRM spokeswoman Christine Walters said, "While credit histories are but one piece of the puzzle used by HR professionals in evaluating job candidates, the information can be useful in determining whether a candidate has the skills and decision-making qualities for a particular job. It can also help a potential employer assess whether the individual is qualified to handle money. In addition, at a time when financial pressures on households are increasing, employee theft is on the rise resulting in a major financial problem for companies."

But it's unclear if having bad credit means you'll end up being a thief or a bad employee.

One widely cited study (.pdf) done by researchers at Eastern Kentucky University in 2003 found that "credit history data have no validity at predicting employee performance measures."

So, if it's unclear what hiring managers really get out of a job seeker's credit history and such screenings can potentially hit some workers harder than others, why haven't they been banned, or severely limited? That question has been asked before, including in The Atlantic by Megan McArdle.

Well, the time may finally be right.

Concerns over the practice have intensified in the bad economy. As a result, a handful of states have passed or are considering passing laws to restrict such screening. Most recently Illinois joined the list. When signing the bill into law, Illinois Gov. Pat Quinn said, "A job seeker's ability to earn a decent living should not depend on how well they are weathering the greatest economic recession since the 1930s."

But the anti-credit-employment-screening movement may have its best advocate yet in the EEOC's new leader.

Many labor law experts believe Berrien might be the one to finally help usher in restrictions on the practice nationally. She's got the budget and some say the personality to get stuff done, following eight years under the Bush administration when the agency was decimated by budget and staffing cuts.

Some employment attorneys see Berrien as a major driving force behind a renewed push to squash credit screening. Martha Zackin, an employment attorney for Mintz Levin in Boston, who represents employers, believes Berrien and the EEOC's fatter coffers are adding fire to the crusade.

Also, people who know her, including Paul Steven Miller, University of Washington School of Law professor and a former EEOC commissioner, expect big changes. "Jackie and the new commissioners are well situated to rebuild trust in the organization among American people," he said.

And what better way than to derail a practice so many Americans despise?