Pre-employment Credit Checks Impact Hiring Strategy

September 5, 2019
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Author: Tyran Saffold Jr

Recently, the House Committee on Financial Services passed legislation that prohibits employers from using credit reports for employment decisions, except when required by law or for a national security clearance. By banning credit checks, this legislation may improve upward mobility of employees, reduce the negative impact on minority job seekers and stop the invasion of privacy of job candidates.

Credit Checks for Potential Employees

First introduced in 2017 by Sen. Elizabeth Warren, the legislation prohibited employers from requiring potential employees to disclose their credit history when applying for a job. However, the legislation stalled, and a bill was never passed.
Warren noted a study by the Federal Trade Commission earlier that year that suggested errors in credit reports are common and, in many cases, have been difficult to correct.

“It makes no sense to make it harder for people to get jobs because of a system of credit reporting that has no correlation with job performance and that can be riddled with inaccuracies,” Warren said.

In 2019, the bill, taken up by Rep. Maxine Waters, amends the Fair Credit Reporting Act to stop employers from requiring or suggesting that applicants disclose their credit history. In addition, the bill prohibits employers from disqualifying employees based on a poor credit rating or information on a consumer’s creditworthiness, standing or capacity.

Echoing the concerns of Sen. Warren about the use of credit checks for employment purposes, Rep. Waters felt that too often, qualified candidates have been denied a job because of inaccurate reporting or financial hardships from years prior.

“An individual’s credit history has been shown not to predict their job performance,” she said. “Nevertheless, credit information is increasingly used by employers. People who have been unemployed for an extended period of time, and whose credit standing has been damaged because they were unable to pay their bills, cannot secure a new job to end their financial distress because prospective employers conduct credit checks as a part of an application process.”

The Society for Human Resource Management (SHRM) and the U.S. Chamber of Commerce oppose the legislation because it is too broad or overreaching. They contend that credit checks allow employers to protect employees, customers and others. There are many employers who use credit checks selectively for executive-level positions or for persons who could expose the company to financial losses and legal liability. The employers need to believe that candidates will protect the security of customer and company information.