House Approves Ban on Most Employment Credit Checks

 

Roy Maurer By Roy Maurer January 30, 2020
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U.S. Capitol

​The U.S. House of Representatives on Jan. 29 passed legislation that prohibits employers from using credit reports for employment decisions, except when required by law or for a national security clearance.

The bill also prohibits hiring managers from asking questions about applicants' financial past during job interviews or including questions about credit history on job applications.

[SHRM members-only toolkit: Conducting Background Investigations and Reference Checks]

Employer groups such as the U.S. Chamber of Commerce and the Society for Human Resource Management (SHRM) oppose the bill, arguing that the information in a credit report is an indicator of a person's judgment and potential risk to an organization, especially for certain positions involving finances and accounting.

SHRM believes employers must have the ability to enact policies and procedures that best meet the needs of their individual organizations, said Johnny C. Taylor, Jr., SHRM-SCP, president and CEO of SHRM.

"The bill puts restrictive prohibitions on companies who may be using credit checks in a correct, limited manner for a job-related purpose," said Pamela Devata, a partner in the Chicago office of Seyfarth Shaw. "Many employers don't use credit checks for their entire workplace but potentially would use it for certain positions—executive-level positions or for people who have unfettered access to a company's finances in accounting and finance roles."

SHRM data backs up that assertion, indicating that employers primarily use credit checks for applicants seeking employment in either financial, security or fiduciary roles within an organization. "This layer of protection reduces organizational exposure to financial losses and legal liability, while protecting the security of customer and company information," Taylor said.

Republicans opposed to the bill characterized it as an overreaching approach that could yield unintended consequences and put consumers at risk.

Republican members of the House Committee on Financial Services, where the bill originated, said in a statement that a person's credit history is particularly important in the financial services industry, where employees may have access to vast amounts of personal and financial information for millions of American consumers.

"Credit checks can also provide information about whether there is potential for increased risk of fraud or illicit activity," the group said.

Opponents of using credit checks in employment decisions say that the practice blocks upward mobility, disproportionately affects minority job seekers and can be an invasion of privacy.

Rep. Maxine Waters, D-Calif., chair of the financial services committee and lead force behind the proposed overhaul of the credit-reporting industry, said that she's been very concerned about the use of credit checks for employment purposes because too often qualified candidates have been denied a job because of inaccurate reporting or due to financial hardships from years ago.

In addition, "an individual's credit history has been shown not to predict their job performance," she said. "Nevertheless, credit information is increasingly used by employers. People who have been unemployed for an extended period of time, and whose credit standing has been damaged because they were unable to pay their bills, cannot secure a new job to end their financial distress because prospective employers conduct credit checks as part of an application process."

Chi Chi Wu, staff attorney at the National Consumer Law Center based in Boston, added that credit reports were designed to predict the likelihood that someone will miss a loan payment, and not whether they will steal in the workplace. "The overwhelming weight of evidence is that people with impaired credit histories are not more likely to be bad employees or to steal from their employers," she said.

Committee Republicans said that they share the concern that credit history can negatively impact a candidate's chances of being selected for a job and that in the majority of cases credit history alone should not disqualify someone from employment.

"However, an outright prohibition of credit checks is irresponsible," they said. "Credit history can and should be a predictor of dependability and may be valuable in certain scenarios along with other factors needed to fulfill responsibilities."

Several states and cities including California, Illinois, New York City and Philadelphia have passed laws restricting the use of credit reports used by employers for employment purposes, with several more jurisdictions poised to join the trend, Devata said.

The U.S. Senate is not expected to introduce the legislation.

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