State legislators across the country are joining a growing effort to remove credit checks from pre-employment screenings because they see them as obstacles for job seekers in a poor economy (â€śStates Stepping Up to Limit Pre-Employment Credit Checks,â€ť CreditCards.com, April 28, 2010).
Since 2007, Hawaii, Washington, and Oregon have enacted legislation that limits employersâ€™ use of credit information as a factor in hiring decisions. And since the beginning of 2010, lawmakers from 18 other states and the District of Columbia have introduced similar legislation, according to the National Conference of State Legislatures.
In 2009, 60 percent of employers conducted credit checks during at least some pre-employment screenings, according to a survey conducted by the Society for Human Resource Management (SHRM). In such cases, prospective hires with negative items on their credit reports could be considered less desirable than those with good credit history.
â€śIn today’s job market, the expectation is that employers can afford to be extremely selective about candidates. While credit might not be the most important factor in a hiring decision, bad credit can be a tipping point between one candidate and others competing for the job,â€ť said Bob Schoenbaum, principal of Minneapolis-based executive recruiting firm KeyStone Search (â€śCredit Scores Can Affect Job Prospects,â€ť Minneapolis-St. Paul Star Tribune, Jan. 11, 2010).
A 2008 report by the Association of Credit Fraud Examiners (ACFE) shows why Schoenbaum may be right. It found the two most common indicators of future fraud in potential employees were candidates living beyond their financial means and candidates experiencing financial difficulties.
â€śIf someone has bad credit, that doesnâ€™t mean they will commit fraud. But that person has a higher risk of committing fraud than someone with a spotless credit history â€” all other factors being equal,â€ť says John Warren, AFCE vice president and general counsel.
Steven Katz, spokesman for the credit bureau TransUnion, said such data make credit screening as valuable to employers as â€śthe personal interview, review of education history, resume, job skills, references, standardized testing and other information that they use as part of the pre-employment process,â€ť especially when considering employees who would have access to funds and confidential information.
But not everyone agrees.
Rep. Matthew Lesser (D-CN), a leader in the fight to limit pre-employment credit checks who has twice proposed legislation to limit them, argues that good prospects are denied jobs as a result of such screenings. â€śThis is an obnoxious practice that has been excluding a number of perfectly acceptable, perfectly qualified job applicants,â€ť Lesser said.
Financial expert Sandy Shore, a senior counselor with consumer counseling agency Novadebt, said employers who rely too much on credit checks can hurt themselves too, by â€śmissing out on some good employees.â€ť She added, â€śI can tell you that I have spoken to many consumers who have bad credit and are very successful at their jobs.â€ť
At the federal level, Rep. Steve Cohen (D-TN), a proponent of limited credit checks, introduced the Equal Employment for All Act (H.R. 3149) which would â€śamend the Fair Credit Reporting Act to prohibit the use of consumer credit checks against prospective and current employees for the purposes of making adverse employment decisions.â€ť The bill was introduced in the U.S. House of Representatives on July 9, 2009, and has been stalled in committee ever since.
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