Business Community Calls Legislation to Amend FCRA ‘Too Broad,’ ‘Redundant’

By Theresa Minton-Eversole Oct 18, 2010

​The U.S. business community and employee rights groups presented testimony during a Sept. 24, 2010, House of Representatives Subcommittee hearing held to address proposed legislation that would further restrict use of credit checks for employment decisions. This was the third hearing held by the House Financial Services Financial Institutions and Consumer Credit Subcommittee to address the issue during 2010.

The Equal Employment for All Act (H.R. 3149), introduced July 29, 2009, byRep. Steve Cohen, D-Tenn., would amend the Fair Credit Reporting Act (FCRA) to prohibit employers’ use of consumer credit background checks on prospective employees and current employees when making hiring, promotion, transfer or termination decisions unless the job involves national security or requires significant financial responsibilities—even if the job applicant or employee consents to use of the information for such purposes. The bill would prohibit employers from asking job applicants to submit to credit checks voluntarily. It would not, however, prohibit the use of background screening for a criminal record even when it is not required by law.

The practice of credit checks “has a discriminatory impact on racial minorities and violates the letter and spirit of Title VII of the Civil Rights Act of 1964,” said attorney Adam Klein,who presented testimonyforthe Lawyers’ Committee for Civil Rights Under Law (LCCRUL).“Given the clear lack of any indication of suitability for employment, the use of credit checks by employers and its accompanying disparate racial impact is unjustified,” added Klein, a LCCRUL board member.

The legislation would be a “significant step forward in eliminating unfair hiring practices” and would open up more jobs for those who despite potentially having poor credit histories are otherwise qualified for them, said Rep. Luis V Gutierrez, D-Ill., who is subcommittee chair and an original co-sponsor of the bill, which has 55 House co-sponsors.

But several representatives of the business community testified that the bill is too broad and addresses issues already covered by FCRA.

Attorney Donald R. Livingston, who testified for the U.S. Chamber of Commerce and who previously was general counsel for the U.S. Equal Employment Opportunity Commission, said that existing law “provides the best method of ensuring that credit history information is used where justified and eschewed where it is not.”

Speaking on behalf of the Society for Human Resource Management (SHRM), Colleen Parker Denston, director of human resources for Worcester Preparatory School in Berlin, Md., testified that credit histories are merely one piece of the puzzle that HR professionals use in evaluating job candidates. But they are necessary in certain cases because under current law previous employers “are reluctant to provide an accurate assessment of a former employee’s work history, strengths and weaknesses. Lack of direct, complete reference information forces many employers to seek additional information about the candidate that can be legally obtained through the use of third-party background check companies.”


The consequences of making a poor hiring choice can be great,
possibly leading to financial losses or an unsafe work environment.

--Colleen Parker Denston


Denston noted that employers are barred by the FCRA and the Civil Rights Act of 1964 from using credit background checks to screen some job applicants and that the FCRA requires employers to inform applicants if an adverse decision was based on a credit-related issue. In addition, she said, four states have passed legislation barring the use of credit background checks in hiring in recent years; 20 states considered such legislation in 2010.

“There is a compelling public interest in ensuring that employers can assess the skills, abilities, work habits and integrity of potential hires in an employment process that balances the needs of both employers and employees,” she said.

The National Retail Security Survey estimates that the U.S. retail industry lost about $14.4 billion in 2009 attributable to employee theft. Employers are using every type of screening method they can to avoid making poor hiring decisions, said Denston.

According to the Association of Certified Fraud Examiners’ 2010 Report to the Nation on Occupational Fraud and Abuse, financial pressures are one of the “key motivating factors” behind check tampering, theft and fraudulent reimbursement schemes by employees, who usually are first-time offenders. The study found that “living beyond financial means” (43 percent of cases) and “experiencing financial difficulties” (36 percent) were the most common warning signs displayed by perpetrators of workplace fraud.

A 2008 report by the association concluded, “Given that financial difficulties are often associated with fraudulent behavior, it would seem advisable for organizations to devote more efforts to conducting credit background checks on new applicants.

“The consequences of making a poor hiring choice can be great, possibly leading to financial losses or an unsafe work environment” said Denston, volunteer government affairs director for the Maryland State Council of SHRM. “Also, if the employee engages in severe misconduct, customers, shareholders and other employees might incur legal liability in the form of negligent hiring, negligent retention, vicarious liability lawsuits or other legal claims.”

“SHRM believes the ability to obtain reliable and accurate job performance information about prospective employees has a direct impact on critical business concerns such as quality, workplace safety and customer satisfaction.”

Uses of Credit Checks

Denston cited several findings from 2010 SHRM survey research into employer uses of credit information. The survey report included data from large employers (500 or more workers), medium-sized employers (100-499 employees) and small employers (1-99 employees) from the public and private sectors.

The findings, released in August 2010, revealed that only a small minority of organizations conduct credit checks on all job candidates and those organizations generally conduct credit checks only for positions that have responsibilities for managing money, property, personal identity and financial information, and other critical resources for employees and consumers.

Among the survey’s other key findings:

*Credit checks on all job candidates is the exception—not the rule. Only 13 percent of organizations conduct credit checks on all job candidates. While 47 percent of employers consider credit history, they do so only for candidates for select jobs, such as those with financial or fiduciary responsibilities, senior executive positions and ones with access to highly confidential employee information.

*Many organizations do not conduct credit checks. Four out of 10 responding organizations revealed that they do not conduct credit checks.

*Credit history is not among the most important factors in making a hiring decision. Credit checks ranked the lowest among a list of criteria employers typically use in making hiring decisions; only 9 percent of organizations reported that favorable credit checks were among the most influential factors in their hiring decisions.

*Employers overwhelmingly use credit checks at the end of the hiring process, not to screen out applicants. At least 87 percent of organizations initiate credit checks only after a contingent offer (57 percent) or after the job interview (30 percent).

*Employers regularly go beyond current law requirements and allow candidates to explain their credit history. Eighty-seven percent of surveyed organizations allow job candidates in certain circumstances the opportunity to explain results of their credit report, which is not required under the FCRA.

Theresa Minton-Eversole is an online editor/manager for SHRM.

Related Articles and Reports:

Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire

Background Checking: Has the Use of Credit Background Checks Increased? A Comparative Look: 2010 and 2004

House Examines Use of Credit Information in Employment, SHRM Online, May 14, 2010

Maryland, Other States Weigh Limits on Credit Checks for Employment, March 3, 2010

Hawaii Prohibits Use of Credit History in Employment Determinations, SHRM Online State and Local Resources, Aug. 11, 2009

Conducting Background Checks in California, SHRM Legal Report, April 3, 2009

Address Discrepancy Rule Will Alter Background Checks, SHRM Online Legal Issues, May 7, 2008

Fair Credit Reporting Act Amended, SHRM Online State and Local Resources, Jan. 25, 2008​


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