Credit Checks on Job Seekers Draw Scrutiny

[keepinitreal]

October 21, 2010

Checking the credit histories of job applicants—a common practice among employers—is coming under fire.

Four states have passed laws in the past three years that limit the practice, and similar bills have been introduced in 20 other states and Congress. The issue has surfaced in the wake of the recession, which has left many unemployed workers with tattered credit.

The underlying concern is that poor credit could become a barrier to landing a job. Employers contend credit checks help them evaluate candidates and protect against fraud.

Another concern is the potential discriminatory impact on hiring. That prompted the Equal Employment Opportunity Commission to hold a hearing Wednesday to listen to testimony from advocates on both sides of the issue.

Opponents of the practice cite studies showing that African-Americans and Latinos tend to have lower credit scores. They also dispute whether credit reports are an accurate way to measure an employee's qualifications. An early 2000s study by Jerry Palmer, an Eastern Kentucky University psychology professor, showed that bad credit was a poor predictor of job performance.

"It is a practice that we believe is both harmful and unfair to American workers," Chi Chi Wu, counsel for the National Consumer Law Center, said at the EEOC hearing. The center advocates for low-income clients.

State laws aimed at limiting the use of credit checks tend to carve out exceptions for certain industries. Oregon's law, for example, exempts federally insured banks and credit unions, as well as some jobs in other industries. In Illinois, debt collectors, insurance agents and some state and local government agencies are among those exempt.

Proponents of credit checks, which include fraud examiners and credit-reporting groups as well as employers, contend the histories are an important screening tool for employers and tend to be used sparingly.

A recent Society for Human Resource Management study showed 60% of employers used credit checks to vet job candidates. Of those, 13% used them for all candidates.

Michael Eastman, an executive director at the U.S. Chamber of Commerce, told the EEOC that employers take individuals' circumstances into account. Many at the hearing stressed that employers look for a pattern of careless financial behavior, not one-time events.

"It's very easy for the best, well-intentioned people to have very difficult times," he said. "Employers recognize that."

Credit checks can also be used as a tool to protect businesses against fraud, supporters argue. A recent study by the Association of Certified Fraud Examiners of some 1,800 fraud examiners globally showed that fraud costs businesses about 5% of their revenue. In the U.S., the median loss was $105,000 in each incident.

In many of those instances, there were "red flags," examiners reported. In 44.7% of cases, fraudsters were experiencing financial difficulties, according to the survey, and in 44.6% of cases, they were living beyond their means.

One problem in evaluating credit checks is confusion over what information is included in credit reports, how employers use them and what research has been conducted on the effects of using the checks in employment.

Experian Information Solutions Inc., a company that provides credit reports, offers an employment report that includes details such as a credit history, evidence of bankruptcy or liens, and information on previous employers. It doesn't include a credit score—which takes into account various details of a person's credit history and synthesizes them into one number. Much of the research on disparities in credit histories between racial groups is based on credit scores, though most employers never see that number.

"I have yet to see a study that shows the relationship between the use of credit reports and the disparate impact," said Pamela Q. Devata, an employment lawyer at Seyfarth Shaw LLP who supports the credit checks.

"If there were, the federal government would likely be using this," she said.

In Cincinnati, Fannie Jeffries, 49 years old, contends her bad credit is holding her back. Laid off in October 2008 from her data-entry position at a bank, Ms. Jeffries was unable to pay her bills.

Between student loans and credit cards, Ms. Jeffries said she was more than $140,000 in debt. She has applied for government work, clerical jobs and for a position stocking shelves at Dollar Tree, among others.

Ms. Jeffries understands why employers might be worried someone with bad credit would steal, but thinks criminal background checks are a better gauge of that propensity.

http://online.wsj.com/article/SB10001424052702304741404575564502442371086.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird

[cspa522]

This is one thing that has us terrified about filing for bankruptcy. We're still going to do it (have to!), but my husband is in finance. When he applied for and got a job earlier this year, they looked at our credit report, and asked him questions about the late payments, missed payments, non-payments, etc. Even though we were trying to do the right thing by using a credit service to help us get our balances lowered and paid off, it didn't matter, they still looked and asked. Luckily, his boss didn't care about it, and was embarrassed actually to have to ask him about it. But we were panicked for days because he had put in notice at his old job (had to, in order to give the standard two-week notice). If they had renigged because of the credit score, he'd have been out of a job more than likely and we'd be screwed even further.

He's pretty convinced he won't get hired anywhere else after filing for bankruptcy, because that will be such a bad mark on our credit (though it can't get any worse!). I think it's horribly unfair to check credit, because it has nothing to do with his work ethic. He's an incredibly reliable, good employee. Good at his job, etc. We just had a rough time and things got out of hand. I hope they pass this in Missouri to take some of the sting out of his future job hunts.

[tobee43]

October 21, 2010

Checking the credit histories of job applicants—a common practice among employers—is coming under fire.

Four states have passed laws in the past three years that limit the practice, and similar bills have been introduced in 20 other states and Congress. The issue has surfaced in the wake of the recession, which has left many unemployed workers with tattered credit.

The underlying concern is that poor credit could become a barrier to landing a job. Employers contend credit checks help them evaluate candidates and protect against fraud.

Another concern is the potential discriminatory impact on hiring. That prompted the Equal Employment Opportunity Commission to hold a hearing Wednesday to listen to testimony from advocates on both sides of the issue.

Opponents of the practice cite studies showing that African-Americans and Latinos tend to have lower credit scores. They also dispute whether credit reports are an accurate way to measure an employee's qualifications. An early 2000s study by Jerry Palmer, an Eastern Kentucky University psychology professor, showed that bad credit was a poor predictor of job performance.

"It is a practice that we believe is both harmful and unfair to American workers," Chi Chi Wu, counsel for the National Consumer Law Center, said at the EEOC hearing. The center advocates for low-income clients.

State laws aimed at limiting the use of credit checks tend to carve out exceptions for certain industries. Oregon's law, for example, exempts federally insured banks and credit unions, as well as some jobs in other industries. In Illinois, debt collectors, insurance agents and some state and local government agencies are among those exempt.

Proponents of credit checks, which include fraud examiners and credit-reporting groups as well as employers, contend the histories are an important screening tool for employers and tend to be used sparingly.

A recent Society for Human Resource Management study showed 60% of employers used credit checks to vet job candidates. Of those, 13% used them for all candidates.

Michael Eastman, an executive director at the U.S. Chamber of Commerce, told the EEOC that employers take individuals' circumstances into account. Many at the hearing stressed that employers look for a pattern of careless financial behavior, not one-time events.

"It's very easy for the best, well-intentioned people to have very difficult times," he said. "Employers recognize that."

Credit checks can also be used as a tool to protect businesses against fraud, supporters argue. A recent study by the Association of Certified Fraud Examiners of some 1,800 fraud examiners globally showed that fraud costs businesses about 5% of their revenue. In the U.S., the median loss was $105,000 in each incident.

In many of those instances, there were "red flags," examiners reported. In 44.7% of cases, fraudsters were experiencing financial difficulties, according to the survey, and in 44.6% of cases, they were living beyond their means.

One problem in evaluating credit checks is confusion over what information is included in credit reports, how employers use them and what research has been conducted on the effects of using the checks in employment.

Experian Information Solutions Inc., a company that provides credit reports, offers an employment report that includes details such as a credit history, evidence of bankruptcy or liens, and information on previous employers. It doesn't include a credit score—which takes into account various details of a person's credit history and synthesizes them into one number. Much of the research on disparities in credit histories between racial groups is based on credit scores, though most employers never see that number.

"I have yet to see a study that shows the relationship between the use of credit reports and the disparate impact," said Pamela Q. Devata, an employment lawyer at Seyfarth Shaw LLP who supports the credit checks.

"If there were, the federal government would likely be using this," she said.

In Cincinnati, Fannie Jeffries, 49 years old, contends her bad credit is holding her back. Laid off in October 2008 from her data-entry position at a bank, Ms. Jeffries was unable to pay her bills.

Between student loans and credit cards, Ms. Jeffries said she was more than $140,000 in debt. She has applied for government work, clerical jobs and for a position stocking shelves at Dollar Tree, among others.

Ms. Jeffries understands why employers might be worried someone with bad credit would steal, but thinks criminal background checks are a better gauge of that propensity.

http://online.wsj.com/article/SB1000...WhatsNewsThird

while these "credit" checks to determine whether you are worthly of a job or a reasonable rate on auto and house insurance with the contention that people whom have bad credit or do not pay their bills have a higher risk of committing fraud, may at one time been based on real statics.


however, in light of this economical climate it is even more unsettling that our legislators and congress have yet failed us again with keeping up with the "times".

the fact that many of us became ill or simply lost our jobs causing the domino theory to take control of our lives, is certainly NOT because we ever intended to commit fraud or file false claims against companies or people....it simply means we have run into hard times. and just to kick us when we are down...they are going to make sure we never get a job...right???

[ccsjoe]

Using credit reports for employment "screening" purposes is an egregious practice that needs to be controlled; unlike criminal and public records checks. I work in the finance and securities industry. There is nothing shady or immoral about my character simply because I made a business decision to file bankruptcy. I currently do have a job, but have had two employers pass on me solely because of my redit report, and am now awaiting the background results of a third as well as starting conversations with a fourth. The employer I am waiting to hear from now has all but told me the job is mine if I want it, pending the background & credit result. I did disclose the BK to the hiring manager and to HR AFTER they all but handed me the job on a silver platter. The only reason for me to not get the formal offer now would be BK, which legally they can not discriminate against you for. Furthermore there is nothing derogatory on my credit report other than BK, not even a *&$$%^& late payment. So, if I don't get a job offer next week, I'll know it was discrimination...what then? I am so friggin p'od at this I can't see straight! It is ridiculous that I can get and hold a security clearance with a BK but not a finance job. None of my licenses have bk restrictions on them. The only restriction would be if I wanted to get a CFP, which would then bar me for five years from date of filing bk to grant CFP status. I am ranting I know, but this strikes a chord because I'm living through it.

I'd like to hear though about the conflict between law and hiring practices. Law states you can not discriminate against a candidate because of BK alone. Hiring practices say otherwise. Is there caselaw with this?

[keepmine]

Unforunately Joe there is some caselaw.
http://www.*************************...ylvania-court/
Court Rules That Private Employers May Refuse To Hire Based Upon Bankruptcy Filing
by Craig Andresen, Minnesota Bankruptcy Attorney · Posted in Uncategorized

In Rea v. Federated Investors, 2010 WL 370334 (W.D.Penn. Jan. 29, 2010), a U.S. District Court held that section 525(b) of the Bankruptcy Code does not forbid a private employer from refusing to hire a job applicant solely because the job applicant filed for bankruptcy in the past. The court stated that while section 525(b) does indeed prevent employers from discriminating against current employees based upon a bankruptcy filing, the unique wording of this section allows bankruptcy discrimination in the hiring process.

The debtor had filed his case in 2002, and received a discharge of debts in that case. In 2009, he interviewed for the position of project manager with Federated Investors. The debtor was informed that Federated wanted to hire him at $80,000 per year but that he had to pass a criminal background and credit check. After a few days, the debtor was informed that the fact of his past bankruptcy was a “deal breaker” and that he would not be hired after all. He sued, claiming that this constituted bankruptcy discrimination – something that’s against the law. He asked for damages for lost wages and emotional distress.

The U.S. district court dismissed the debtor’s claims, observing that section 525(a) addresses governmental employers, and that section 525(b) addresses private employers. Section 525(a) and (b) read as follows:

(a) Except as provided in the Perishable Agricultural Commodities Act, 1930, the Packers and Stockyards Act, 1921, and section 1 of the Act entitled “An Act making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes,” approved July 12, 1943, a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt— (1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act; (2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

The court noted that section 525(a) forbids a governmental employer from denying employment based upon bankruptcy, while section 525(b) forbids a private employer from terminating employment or discriminating in employment based on bankruptcy. The phrase “deny employment to” was found in section 525(a) but not in section 525(b). The court found that Congress must have had a reason for omitting this phrase from section 525(b). Accordingly, it held that private employers were allowed to discriminate in hiring based upon bankruptcy, and the debtor’s discrimination case was dismissed.

[ccsjoe]

Thanks for finding this keepmine. I guess the real question is what the intent of the wording was. Needless to say, it sucks, but that's life. I'm now less hopeful of receiving a formal offer next week, but probably more realistic. I'm sure after a few drinks it'll all become clear.

[Goteki45]

I for the life of me could never make the connection between a person's credit score and whether or not he or she would make a good employee. Bad things happen to good people. When it does happen, it doesn't make the person bad all of a sudden. With an estimated 1.8 million bankruptcy filings this year alone, it is insane to believe that all of these people would be considered "not employable" simply because of the recession and other circumstances trashing their fico score. I'm not a fan of government for the most part, but I applaud congress and the states in passing or attempting to pass legislation in order to put a stop to this madness. Fico scores aren't meant to determine whether a person is a safe driver nor will be a good worker.

[Flamingo]

What is behind all this is those that made it hard for those who are innocent but fall into the same "class" (bad credit) situation. There was a period of time when employers were pretty lax on who they hired and did not do major background or credit checks going by just the references given the employer to prove who they were, their background and for those that remember, testing was done to determine your skills, typing skills, intelligence, etc., etc. Not too many people get called back now to do typing tests or anything of that nature but as time went on, many of these people were not who they said they were, infiltrated the companies to steal, set up fraudulent schemes, open accounts, embezzle, etc., etc. It was discovered that most of these people needed money due to bad credit, some going to elaborate lengths setting up checking accounts in fake names and involving a web of other people, give out company information to competitors for money, etc., etc.. It was discovered that most of these people had bad credit, owed creditors lots of money, lied about college or other information on their resumes, etc., etc. What companies started to do over the years was protect themselves from this or other similar scenarios by checking out people more prior to hiring. So every employee was checked to some extent prior to hiring and anyone having bad credit or a BK on their credit reports were red flagged. It is now stated policy in most businesses to run background and/or credit checks on all employees. It may be required also for the company for insurance and legal purposes also. And it all factors down to those that set the stage in the past making it hard for the other sector of that "class."

Another stigma that is attached to those with bad credit/BK on their records is that there may be personal issues at home or otherwise which could affect their job performance (i.e., doing more personal things on the job, missing a lot of time from work, inability to focus due to financial problems, etc., etc.). Employers want people who have a good work ethic and will be on the job every day and not do any personal things on company time or miss a lot of work, come in late, leave early, etc., etc. Problems on a prospective employee's background/credit check could be a red flag for them in that perspective.

The difference here is separating those that are folks who need jobs and are not embezzlers wanting to get into a company to steal and are good, loyal, hard working experienced folks who have lost their jobs and need work but unfortunately have the late payments and/or BK on their credit backgrounds due to the economy. Companies will still need some way to protect themselves as there will always be people trying to get in to do no good but somehow separate those from the entire "class" of people with bad credit and/or BK on their records. If credit checks are done away with businesses will probably be more thorough in other checks as to references, background checks, etc. and those in financial positions will find there probably will be more monitoring of employees on the job, checking with former jobs/bosses, etc., etc.

[tobee43]

Thanks for finding this keepmine. I guess the real question is what the intent of the wording was. Needless to say, it sucks, but that's life. I'm now less hopeful of receiving a formal offer next week, but probably more realistic. I'm sure after a few drinks it'll all become clear.

joe, frankly, speaking, i have hopes of that offer will indeed come and you will just let them know what happened and they will hire you in spike of....or in lieu of.

whether the congress address this issue soon enough is not the point, potential employers are going to realize that many of the "best" in their fields were laid off and driven to bk....examples....in common sense thought....the top comes off first...the older most experience higher paid employees many times are laid off first, in an effort for money saving measures for many major companies. to them it was a sound and sensible business decision, however, not giving a damn about what it's done to their loyal employee of 8-20 years of flawless efforts.

let's hope that some companies will take notice and understand...that joe...you pointed it out previously, that, just because you made a financial business decision to help your family's future and needed a new start it did not effect your abilities to perform your job duties effectively.

just listen to cnn for 15 minutes this is ALL one hears over and over and over...this economy and what it's doing to everyone...it has no socialist or economic boundaries...not this one...it hit hard for many levels and walks of life. changes will have no choice but to come. (i hope)

[LadyInTheRed]

House Bill 3149 is the federal bill pending on this subject. For more info go to: http://thomas.loc.gov/cgi-bin/bdquery/z?d111:H.R.3149:

If you are in favor of it, write or call your representative and ask him/her to vote yes when it comes up for a vote.

[ccsjoe]

tobee, I appreciate you positivism, but prefer to be realistic in realizing I'm stuck where I am, at least I'm not screwed in not having a job.

Ladyinthered, thank you for that link. Our rep's have been written to because of your link.

[DebtZombie]

ladyinred, thanks for posting the link!

[tobee43]

tobee, I appreciate you positivism, but prefer to be realistic in realizing I'm stuck where I am, at least I'm not screwed in not having a job.

Ladyinthered, thank you for that link. Our rep's have been written to because of your link.

i can only be positive when it comes to you...you deserve the best and i just think if i keep thinking positively...it will happen...i hope for you...

[Pizza]

So far, credit has not been a factor in my finding a job, fierce competition has. Many people that aren't receiving any feedback when submitting applications are thinking that maybe it's their credit, but it's probably just too many candidates, many with more experience in the field. No feedback at all probably means they didn't run a credit report - they just picked another of the many candidates.

Many will say to 'be upfront' about bad credit. I wouldn't do it unless companies make clear the importance of it.

Applications read the same for all positions within a company, so they will likely say that you are SUBJECT to all kinds of checks, but outside of some departments where it may be an issue, they probably won't even run the checks.

[2BetterTimes]

I am a licensed insurance broker for 21 years now and we filed BK 13 last October.

In order to sell a policy for an insurance company, I have to get "appointed" or contracted first by them. I got an appointment with Markel Insurance Co. in August 2010 and sold 1-2 health policies.

In March 2011, I submitted a new Non-Resident KY license to Markel (I'm in AZ) so that I could sell a plan in KY. Apparently that triggered a credit check, they saw the BK and then terminated my contract. From what I gathered when speaking to a lady at Markel, something about they didn't do their credit/background checks diligently before and they were now "conforming" with whatever and my submitting the NR KY license, triggered the check.

It was very black/white with Markel and I wasn't even given an opportunity to explain. Now, I have to report this on every paperwork I fill out regarding my license and future appointments. If this is the norm, then it will definitely impact my business!