Why That Proposed Ban on Employment Credit Checks Will Fail

Sen. Elizabeth Warren, D-MA., has introduced a bill that will effectively bar employers from conducting credit checks on potential job candidates as part of the employment background screening process.

The proposed “Equal Opportunity for All” Act would make credit checks illegal in many cases except in specific areas such as national security.

Now let me be the first to say that this bill doesn’t stand a snowball’s chance of passing.

Why this proposed ban will probably fail

Here are six reasons why:

  1. It is a widely held misconception that employers conduct credit reports on job candidates indiscriminately. However, we’ve documented time and time again a SHRM study which indicated that 60 percent of surveyed employers conduct credit checks on their job candidates. However, it is important to point out the 47 percent of employers indicated that they only run them on select employees and only 13 percent indicated they do so on all employees. These stats go a long way towards proving the employers are using these checks responsibly. Namely, they are either complying with regulations that demand that a credit report be consulted or they are using them for positions where the information found on a credit report will have a direct relationship to the job responsibilities.
  2. Rarely does adverse credit information prevent a candidate from being hired. That same SHRM study found that 80 percent of candidates with negative credit information are hired in spite of that information.
  3. There are a number of federal and state regulations that mandate employers conduct credit checks for certain industries: insurance, financial services, mortgage, banking, etc. These regulations exist for good reason. They protect these businesses as well as the customers they serve. Remove the mandate and you expose innocent people to potential catastrophic loss. Who’s going to be responsible for that? Senator Warren?
  4. Individual states are doing a much better job of policing this issue on their own. There are currently 10 states (Illinois, Washington, Colorado, California, Oregon, Maryland, Nevada, Hawaii, Vermont and Connecticut) that have enacted laws that curb the use of credit reports. In each case, there are reasonable exemptions for industries and job responsibilities where consulting a credit report is a responsible practice.
  5. The Association of Certified Fraud Examiners estimates there are about $1 trillion worth of employee thefts annually, which totals on average more than $175,000 per business. The figure rises to $200,000 for organizations with 100 employees or less. My good friend Norm Magnuson from Consumer Data Industry Association (CDIA) is quoted as saying that “The top two red-flag warnings present in these crimes were instances where the fraudster was living beyond his or her financial means or experiencing financial difficulties. That’s important because employee fraud and theft can very well determine whether a small business survives or not.”
  6. Congressman Steve Cohen, D-TN, has been trying to push this bill through Congress for years with no success. Perhaps his fellow legislators recognize that an all-out federal ban is an irresponsible reaction to a sound business exercise in risk management.

What employers should consider

As I’ve said before and will continue to repeat, I am not a huge advocate of credit reports. However, there are instances where that information should be consulted before a hiring decision is made.

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SHRM’s Mike Aitken put it best when he said, “Credit reports are one tool used in the hiring process, but often not the deciding one. ”

Here’s some advice for employers who are considering credit reports as a component of their employment background check:

  • Are you in an industry that mandates credit reports as a hiring criteria?
  • Do the job responsibilities justify the evaluation of a credit report (managerial responsibility, access to financial records or larger sums of money, company executive, etc.)
  • Does your state have a law that bans the use of credit checks? If so, do you qualify for one of the exemptions?
  • Take the time to evaluate what adverse information about a candidate would be concerning, and make sure that hiring decisions are made by taking into account all of the information you have about the candidate

This was originally published on the EmployeeScreen IQ blog.


5 Comments on “Why That Proposed Ban on Employment Credit Checks Will Fail

  1. Is there any data you can point me to indicating that any of the states you cited have had an impact either positive or negative on either employee fraud/theft or on hiring discrimination? Have restrictions on credit checks increased losses in those states?

  2. “sound business exercise in risk management.” It’s also blatant discrimination, but corporations are more important than individual citizens in ‘MURICA so who cares, right?

  3. BULLSHIT !!!

    I got hired at a local Verizon Store in Rapid City while on vacation…
    30 days later we moved from ILLANOY for me to start my new job and the day I was to start I was told I did NOT get the job because of my CREDIT SCORE !!!

    Too bad for me and my family it took a month for them to do it, simply because the initial manager FORGOT when she hired me !!!

  4. This article is a corporate ass kissing. After the financial crisis there are many people with bad credit. Credit reports are used in hiring decisions and I see people get job offers withdrawn all the time because of bad credit.

  5. This is a load of B.S.! Maybe you should try living in the real world. Credit checks for 95% of jobs need to go.

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