Critics Say Credit Checks On Job Applicants Are Unfair

October 25, 2010

Employer credit checks are nothing new, but at a time when the economy is struggling to pick up, more and more people are criticizing the practice.

The Washington Post reported that a survey by the Society for Human Resource Management (SHRM) showed that 60 percent of organizations use credit checks as part of their candidate screening process. Although the practice seems logical for employees who handle cash or work in financial services, it makes less sense for other positions.

Employment lawyer Pamela Devata told The Baltimore Sun that companies use credit checks because it can be difficult to get meaningful references. She stated that former employers are often reluctant to provide negative feedback for an ex-employee for fear of being sued and new websites now offer fake references. "Employers are struggling to get good information," she explained.

Furthermore, The Atlantic quoted Christine Walters, human resources consultant and SHRM spokesperson, saying, "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."

Opponents, however, argued that the practice is flawed. The Wall Street Journal reported that four states have passed laws prohibiting or limiting the practice and 20 other states have introduced similar bills. "It is a practice that we believe is both harmful and unfair to American workers," said Chi Chi Wu, counsel for the National Consumer Law Center.

Although credit checks have been around for years, concerns have intensified in the bad economy. Some worry that unemployed workers who, as a result of losing their jobs, have tattered credit could have increased trouble landing a job. "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," said Illinois Governor Pat Quinn in The Atlantic.

Others argued that the practice could have a discriminatory impact on hiring. Past studies have shown that minorities, particularly African Americans and Latinos, tend to have weaker credit histories and are often victims of predatory credit practices.

Moreover, The Baltimore Sun noted that studies have shown that good credit does not equate to better performance reviews. Indeed, Sarah Crawford with the Lawyers' Committee for Civil Rights Under Law said employers have a "misguided reliance on credit checks" because they offer little insight into an employee's character and abilities.

According to The Washington Post, the Equal Employment Opportunity Commission (EEOC) has already held a hearing to examine the potential impact credit checks have on workers. The Atlantic speculated that the practice may soon be banned. Labor law experts believe Jacqueline Berrien, who will become the new chair of the EEOC in April, will be the one to finally place national restrictions on the practice. With the budget and a personality to get things done, many are expecting to see some big changes.

Compiled by Heidi M. Agustin