[January 8, 2014] At this time of year when visions of credit card bills dance in our heads, Senator Elizabeth Warren (D-Mass.) has introduced a bill that would ban employers from checking the credit of applicants during the hiring process. The Equal Employment for All Act would prohibit employers from using credit reports for employment purposes, unless for a national security position or otherwise required by law.
In her floor speech supporting the bill, Senator Warren explained that a bad credit rating is often the result of a personal crisis, and she pointed to research demonstrating that a person’s credit rating has little to no correlation to his or her ability to succeed at work or likelihood to commit fraud. Other supporters of the bill have argued that credit checks are discriminatory, pointing out that African Americans and Hispanics have considerably lower credit scores than non-Hispanic Whites.
Is this a solution without a problem? A 2012 survey by the Society for Human Resource Management found that less than half of employers (47 %) conduct employment credit checks. Only 13% of employers conduct credit checks on all job candidates. The remaining 34% of employers conduct credit checks only on those candidates applying for sensitive positions, including positions with financial responsibilities, senior executive positions, and positions with access to highly confidential employee information. For employers who conduct credit checks, most do so only after making a contingent job offer.
If you are in the minority of employers conducting credit checks, we recommend that you stay tuned to this bill, which appears to coincide with the Obama Administration’s renewed focus on income inequality. We also recommend that you take this opportunity to review your credit-check policy and other background-check practices.