Opinion: Time to End Employers' Credit Check Abuse

If you're having trouble paying bills, it would seem the responsible thing to do would be to get a job, or to get a better paying job.

Unfortunately, the reason you need the job may be the same reason you don't get it. Employers are increasingly -- and inappropriately -- using credit checks to screen job applicants and occasionally to monitor current employees.

Sixty percent of employers conduct credit checks on at least some applicants, with 13 percent doing it for all candidates, according to a 2010 Society for Human Resource Management survey. They often look back as far as seven years. By comparison, only 19 percent of employers checked credit on some employees in 1996.

Vetting applicants for jobs that involve managing finances or handling large sums of money makes sense. But manual laborers, auto mechanics, gym trainers, customer service representatives, nurses, teachers and others are needlessly losing out on jobs because of bad credit.

Although individuals must give permission to review their credit, employers say they would likely reject job applicants who refused the check. Perhaps most alarming, the Society for Human Resource Management survey found, was that "9 percent of recruiters reported that favorable credit background check results were most influential in their hiring decisions."

So much for education, work experience, references and interviews!

"At a time when everybody's credit is suffering, it's preposterous to think you might not be able to get job because of a student loan or a medical bill," said Nat Lippert, research analyst for the union UNITE HERE, which along with the NAACP, NOW and others wants lawmakers to end the practice. Which is why Congress should enact recently proposed legislation to do just that.

The primary reasons that employers conduct credit checks, according to the Society for Human Resource Management survey, are to prevent theft and embezzlement and to reduce liability for negligent hiring.

Norm Magnuson, spokesman for the Consumer Data Industry Association, the lobbying arm of credit bureaus, cited a study that found employees with "financial history concerns were significantly more likely to engage in counterproductive work behaviors."

But the study's co-author said that companies should use caution when deciding to use a credit check. "Specifically, organizations should ensure that the content of what the financial/credit history tool measures matches the tasks, duties and responsibilities of the job in question," said Brian Lyons, a business school professor at California State University, Fresno.

Meanwhile, another university study, which reviewed the credit reports of 200 employees, found no link between credit score and job performance.

Even a TransUnion Credit Bureau official admitted at a hearing last year, "We don't have any research to show any statistical correlation between what's in somebody's credit report and their job performance."

Plus, many credit reports contain mistakes, thereby undermining even the purported connection to job performance. The Consumer Data Industry Association admits that over 1 million credit reports had damaging errors. A government study suggests that figure is a gross underestimate.

People may also have bad credit for reasons completely beyond their control -- such as divorce, illness or identity theft, just to name a few -- that would have little to no bearing on work performance.

And, to top it off, credit checks can expose employers to lawsuits. Statistics show minorities are disproportionately harmed by the practice, as they tend to have worse credit. Consequently, the U.S. Equal Employment Opportunity Commission's Guide to Pre-Employment Inquiries suggests employers avoid checking applicants' credit because they could be found liable for disparate impact discrimination under the Civil Rights Act.

There are better ways to screen job applicants.

A substantial amount of research has shown that integrity tests, which measure an applicant's attitudes toward theft, dishonesty and other counterproductive work behavior, are much more effective than credit checks and do not adversely affect minorities.

Yet, despite the abundance of information that credit checks do more harm than good, only four states have placed restrictions on the practice, according to the National Conference of State Legislatures.

Congress can and should prohibit the practice nationwide, with the possible exception for specific jobs for which employers legitimately need to look at credit history. Regardless of what happens with pending legislation, employers should voluntarily discontinue credit checks in favor of alternative indicators of employee performance.

With the country facing 9 percent unemployment, it's unconscionable for employers to turn down a qualified job applicant simply because they have a black mark on their credit report.

"For someone working in landscaping or maintenance, it's probably not appropriate," admits credit check proponent Mike Aitken, Society for Human Resource Management's director of government affairs.

Fixing our country's economic woes depends on it.