Credit Checks Pose Hurdle for Job Seekers

CreditReport

Correction 3/28/14: A quote attributed to Josh Zinner was corrected.

You polished your resume; you polished your shoes. You checked in with your references, but did you check your credit report? Employers are permitted by law to run credit checks on employees or prospective employees, and nearly half do, according to a 2012 study by the Society for Human Resource Management (SHRM).

But there are limits to how these checks can be ordered and used, and the Federal Trade Commission and the Equal Employment Opportunity Commission want employers and employees to be aware of them, this month jointly issuing two guides explaining how the Fair Credit Reporting Act and antidiscrimination law restrict the practice.

The guides point out legal safeguards such as the requirement for written permission from the employee or applicant before a credit check is run, the employee or applicant’s right to review and resolve any negative finding in the credit report before the employer acts on that information, and prohibitions in the law against using credit checks in a discriminatory manner.

According to fair credit attorney Jim Francis, employer compliance with the law is a problem, despite the SHRM study’s finding that most employers said they had hired a candidate with a bad credit report. Francis says he sees “widespread violation” of the pre-adverse action notification. “The employer just moves on to the next candidate. That is not what the law provides,” Francis said. “At a minimum, the law requires five days to dispute and resolve” the negative information on the report.

While the credit check problems Francis deals with for the most part concern applications for higher corporate positions and sensitive government jobs, one in seven middle- and lower-income households surveyed by public policy group Demos said they had also been subject to a credit check in an employment context. The 2012 survey additionally showed one in ten unemployed respondents were told they were not hired for a job based on information in their credit report.

Josh Zinner of the advocacy group New Economy Project says employment credit checks “have a disproportionate impact on lower income communities and communities of color,” whose members, he said, are more likely to have poor credit history due to predatory lending practices. Zinner says the situation becomes a Catch-22 for people. “When they have problems with their credit history, they can’t get jobs, and when they can’t get jobs, they can’t pay their bills and it negatively affects their credit history.”

Foes of employment credit checks also argue that poor credit has no relation to a person’s success at work. “There’s no evidence anywhere that credit history has any bearing on anyone’s ability to do their jobs,” said Zinner, who also noted that the reports are “rife” with errors. In fact, a 2013 study by the FTC found one in four consumers identified errors in their credit report. “We get a lot of calls from people who have all kinds of mistakes on their credit report,” Zinner said.

As criticism of the practice has mounted, at least 10 states have passed legislation restricting its use, and bills have been brought in Congress to do the same on a national level. Last December, Sen. Elizabeth Warren (D-MA) introduced the Equal Employment for All Act, which would allow credit checks in hiring only for positions that require national security clearance. In a written statement issued at the time she filed the legislation, Warren said, “This is about basic fairness – let people compete on the merits, not on whether they already have enough money to pay their bills.”

In the meantime, Zinner’s organization has turned its attention to the local level, trying to pass an ordinance prohibiting employment credit checks in New York City. Until such a ban is universal, Francis advises job seekers to “certainly obtain your credit reports,” pointing out that they are free once a year from the three major credit reporting agencies – Equifax, Experian, and TransUnion.

Delve Deeper

Read the Federal Trade Commission’s guide on employment background checks.
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