Running employer credit checks on potential hires? It’s a practice drawing increasing criticism, prompting the Equal Employment Opportunity Commission (EEOC) to recently hold a hearing on the issue. This nationwide scrutiny of employee credit checks has spurred four states to pass legislation that limits their use, while 20 other states and Congress have introduced similar bills. So why the scrutiny?
Opponents argue the checks prevent applicants with poor credit from getting a job.
- The recent economic crisis has created a large pool of unemployed workers with damaged credit and high levels of debt. Opponents argue that employee credit checks have become a barrier to those workers finding a new job.
- A few studies suggest that some groups, including African-Americans and Latinos, tend to have lower credit scores. A representative from the National Consumer Law Center testified to the EEOC that these types of issues make employer credit checks “harmful and unfair to American workers.”
- Others question whether a credit score is a good indicator of how an employee performs on the job. Opponents cite an Eastern Kentucky University study that suggested a poor credit history was not an accurate indication of job performance.
Employers argue credit checks flag potential problems.
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- For many companies, credit checks are an important screening tool often used in conjunction with criminal records and identity verification services. Employer credit checks typically include information regarding credit history, bankruptcy filings and prior employment information. Those reports, however, often do not include a credit score, which means that most employers never even see the number that some research suggests may indicate racial disparity.
- Advocates of employer credit checks argue that the practice prevents loss and reduces risk by identifying the potential fraudsters who might steal or embezzle company resources. They cite evidence that suggests there may be a link between an employee’s financial circumstances and the propensity to commit fraud. For example, nearly half of fraud criminals in one study were having money problems and about the same number lived above their means, according to the Association of Certified Fraud Examiners.
- Employer credit checks may also protect a company from litigation. For example, a check might uncover an in-home healthcare worker applicant who may be more likely to steal from an elderly client, a crime that can trigger a civil suit against the employer.
State laws vary widely. While some states limit how employers use credit checks, they may also offer exemptions for specific sectors or industries. For example, Illinois law exempts state and local government agencies as well as debt collectors and insurance agents from credit check limitations.
Start protecting your business today by staying up to date on employer credit checks legislation. It’s a best business practice that you can’t afford to overlook.
Recommended Background Checking Resource: “Sleuthing 101: Background Checks and the Law“.
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