Proposed Bill Would Ban Credit Checks on Employees and Applicants

By Eric B. Meyer

Yesterday, I discussed some pending federal legislation that would expand the FMLA to cover part-time employees.

Now, I hear that another bill introduced in the U.S. House of Representatives, known as the Equal Employment for All Act, would amend the Fair Credit Reporting Act (FCRA) to prohibit the use of consumer credit checks against prospective and current employees for the purposes of making adverse employment decisions.

You can download a copy of the Equal Employment for All Act here.

This legislation comes as a shot to business groups, many of whom regard credit checks as a safeguard against hiring people who may have trouble with money for positions of trust that involving the handling of money. According to a 2012 SHRM survey, among organizations that initiate credit background checks, 87 percent do so for positions with financial responsibilities.

The debate over credit checks

Although critics of credit checks tout misuse, that risk is mitigated by protections already built into the FCRA. That is, if an employer takes an adverse employment action based on information in a consumer report, it notifies the applicant or employee, advises them of the right to see information being reported, and lets them correct inaccurate information.

Further, anti-discrimination laws also provide another potential avenue for employees who believe that employers are misusing credit checks to pursue redress. And some states have already passed laws forbidding the use of credit checks in employment decisions.

Moreover, credit checks are rarely used in the early phases of the interview process. Rather, they generally enter into the hiring equation near the end.

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Most checks done after a job is offered

According to the 2012 SHRM survey, among organizations that initiate credit background checks, 58 percent do so after making a contingent job offer and 33 percent after the job interview. Thus, very few applicants for a particular opening are affected.

Although fewer employers than in previous years utilize credit reports as a hiring tool, proponents can cite enough pros and safeguards to outweigh the cons.

I suspect that the Equal Employment for All Act will not become law.

This was originally published on Eric B. Meyer’s blog, The Employer Handbook.

You know that scientist in the action movie who has all the right answers if only the government would just pay attention? Eric B. Meyer, Esq. gets companies HR-compliant before the action sequence. Serving clients nationwide, Eric is a Partner at FisherBroyles, LLP, which is the largest full-service, cloud-based law firm in the world, with approximately 210 attorneys in 21 offices nationwide. Eric is also a volunteer EEOC mediator, a paid private mediator, and publisher of The Employer Handbook (www.TheEmployerHandbook.com), which is pretty much the best employment law blog ever. That, and he's been quoted in the British tabloids. #Bucketlist.

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11 Comments on “Proposed Bill Would Ban Credit Checks on Employees and Applicants

  1. The thought that someone’s credit score has any relevance to their workplace performance is specious at best, harmful at worst. Let’s put an end to this atrocious practice now.

  2. Actually, the credit score can be part of the overall impression an employer gets about an applicant’s ability to manage their responsibilities and be accountable. Some employers also have policies that consider whether someone with horrible credit should have access to customer credit card accounts. A good policy makes allowances for events beyond the applicant’s control – such as illness, a long period of unemployment, or a financially devastating divorce. It seems that only those with dismal credit want to take away the employer’s ability to consider credit as just one part of who they are as an applicant.

    1. The unspoken implication of your statement is that people with bad credit are more likely to steal. Do you have anything to back that up?

      Credit and finances are one of the most personal aspects of someone’s life. To pry into them is an invasion of privacy. Do you suppose that it is equally okay to scrutinize a person’s romantic life, and somehow correlate it to their ability to perform on the job?

      I can see it now, “sorry but you don’t get the job. Background check show’s that you are divorced. Clearly, you cannot manage your personal affairs properly, so we don’t trust you to do your job any better. Next!”

      Totally ludicrous.

      1. You’re not the only one who’s had that thought. I liken checking a credit rating to asking how many sexual partners someone has had. It’s ridiculous and intrusive.

    2. Also, employment is a form of contract, and a contract is a two-way street. Whatever you get, I get something in return. Are you and/or the company prepared to reciprocate?

    3. WOW. Okay, I’ll just say what many are thinking: What a presumptuous and simplistic thinking snob you are! I was “semi” with you until your last sentence: I wrote what I wrote and think the practice should be ended because it’s a potential lawsuit waiting to happen. Surely you’ve heard of Adverse Impact? And my God your post is just dripping with pretentiousness and yes, just plain snobbery.

      PS: My credit rating is just fine. But I was raised to worry and be concerned about the plight of everyone, not just those in my little bubble of the world.

  3. What about the 42% who perform the check before the offer is made, potentially costing applicants a position?

    1. And that’s just reality. An employers HR department can have a written policy, but reality is a whole other story. OF COURSE they check your credit before deciding on whether or not to hire you. And as someone said before, it’s legal discrimination. Who’s MORE likely to have bad credit? A poor person. Our culture’s open hostility toward the poor is appalling.

  4. There is a SLEW of Adverse Impact lawsuits waiting to happen because of this ridiculous practice. And given the current economy I can’t believe this barbaric practice is still going on.

  5. re: “positions of trust”

    I do not feel it is responsible for the author to perpetuate the fear that employers may be barred from performing credit checks on applicants who work in positions where it would be applicable (in a bank, for instance).

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