D.C. Bill Protects Job Applicants’ Credit Histories

States and cities join trend of blocking credit, criminal history background checks

By Roy Maurer Dec 5, 2016
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Washington, D.C., is the latest jurisdiction to consider legislation to prevent employers from conducting credit history screens for most job applicants.

Currently 11 states, New York City and Chicago have passed legislation limiting the use of credit checks in the hiring process. The states include California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington.

In November the D.C. Council Judiciary Committee unanimously passed The Fair Credit in Employment Amendment Act, which would amend the city's Human Rights Act of 1977 to include "credit information" as a protected trait.

The bill now being considered by the full D.C. Council would restrict an employer from checking an applicant's credit history unless the employer can provide a credible reason, or local and federal law require the credit history screen.

An employer found to be in violation would face a $1,000 fine for the first offense, $2,500 for the second, and $5,000 for each succeeding violation.

Washington, D.C., passed a "ban-the-box" law in June 2014, which restricts employers from asking candidates about their criminal history before making a conditional offer.

Judiciary Chair and Ward 5 Councilmember Kenyan McDuffie, who introduced the credit check measure, said credit histories can be inaccurate and not indicative of how a worker will perform on the job.

"This bill will abolish restrictions that unjustly exacerbate challenges faced by applicants who are already having difficulty with finding employment and making ends meet," he said. "Some people falsely believe that [credit history] determines someone's character or likelihood that they'll commit a crime … credit history isn't a reliable way to measure a person's ability to do a job."

'Catch-22' for Job Seekers

Employment credit checks are legal under federal law. Nearly half of employers (47 percent) check a candidate's credit history, generally motivated by concerns about theft, embezzlement and legal liability for negligent hiring, according to 2012 research from the Society for Human Resource Management (SHRM).

[SHRM members-only resource: Credit Check Policy]

The federal Fair Credit Reporting Act permits employers to request credit reports on job applicants and existing employees, after first obtaining written permission from the individual being screened. Employers are also required to notify individuals before they take adverse action based on any information in the credit report and to offer a copy of the credit report and a written summary of the consumer's rights with the notification.

"These consumer protections are important, yet they are far from sufficient to prevent credit checks from becoming a barrier to employment," said Amy Traub, a senior policy analyst at Demos, a public-policy think tank based in New York City. "Employers can reject any job applicant who refuses a credit check."

McDuffie asserted that credit checks were never intended to be used in employment. Credit reports, which contain information on mortgage debt, student loans, credit card balances, past bankruptcies and debt collections, were instead developed as a means for lenders to evaluate whether a would-be borrower would be a good credit risk, he said, citing a report from Demos.

"Employment credit checks can create an untenable 'catch-22' for jobseekers—they are unable to secure a job because of damaged credit and unable to escape debt and improve their credit because they cannot find work," Traub said.

Targeted Credit Checks Strengthen Fraud Prevention

Defenders of screening credit information for hiring argue that being able to access candidates' credit history in a responsible way can be a valuable tool, and that in fact, personal financial health can be an indicator of potential employee fraud.

Melissa Sorenson, executive director of the National Association of Professional Background Screeners, headquartered in Raleigh, N.C., said her organization understands and appreciates legislative efforts to address discrimination but urged lawmakers to first review how employers are using credit today before eliminating or severely limiting access to credit information.

Sorenson cited the 2012 SHRM survey findings that found 83 percent of the less than half of employers who screen for credit do so only for certain job candidates. "Further, 80 percent of those employers using credit history information reported having hired a candidate whose credit report presented his or her financial situation negatively," she said.

Paul Pascal, president and general counsel of the D.C. Association of Beverage Alcohol Wholesalers, who testified against the bill, said that the types of positions exempted from penalty should include any position that offers access to personal data, proprietary information, cash and valuable inventory such as alcohol, and those positions that perform fiduciary duties.

"On a daily basis, our members transport, receive and document highly valuable commodities," he said. "Being able to employ trustworthy employees to handle such funds and inventory is of the utmost importance."

The Association of Certified Fraud Examiners reviewed occupational fraud between 2006 and 2008 and found that the top two red flag warnings exhibited by perpetrators leading up to engaging in fraudulent activity were living beyond financial means (present in 39 percent of all cases) and experiencing financial difficulties (present in 34 percent of all cases).

"Not all financial difficulties will or could lead to fraud, but lawmakers should not tie the hands of employers and undercut fraud prevention measures by outlawing the use of information that shows a correlation between past or current behavior and future fraud," Sorenson said.

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