During long periods of unemployment people often fall behind on bills, and evidence of those financial woes can be found in the credit histories of people who are struggling to make ends meet.
While more companies may be hiring again, if they base hiring decisions on an applicant’s personal credit history, employment may be an elusive goal for some people.
The relevance of credit histories
In the past few years, several states have introduced bills to restrict employers’ level of access to personal credit reports. Sen. Greg Taylor, D-Indianapolis, introduced a bill this year that would limit access to credit reports, except for specific occupations. That bill failed to advance beyond committee, and a similar amendment he proposed to House Bill 1001 failed a voice vote, too.
Taylor couldn’t explain why his bill didn’t make more progress in the Legislature.
“I really don’t know except that people in this body are sometimes a little less willing to do anything that hampers the employment process,” he said. “We’re very employer-friendly, if you will.”
Taylor, who is also a lawyer, said he sees no connection between credit and employability.
“Companies are beginning to hire again, but they are becoming more and more selective about who they hire,” he said. “Personally, I believe that if someone’s credit score is bad, it doesn’t have any correlation with their work ethic.”
John Hoover, founding partner of Hoover Hull, said he can understand why someone would look at credit histories when making hiring decisions.
“If you’re running a law office and confidentiality being as important as it is, if you had somebody who was in terrible financial straights, you would be concerned about their attention to detail at work … there would be a variety of things that would cause me concern about hiring someone if they had terrible financial problems,” he said.
“Race, age, sex and national origin are protected categories. I don’t think people that owe money to other people are a protected category,” Hoover said.
Drewry Simmons Vornehm attorney J.D. Walls, who represents employers, said he’s been fielding more questions from businesses recently about background checks.
“The issue has bubbled up more and more often over the last four or five years, particularly since the economy started going down, and what we’ve seen is just more questions about the appropriateness of using it, particularly the credit report part of it,” Walls said.
“Most employers – statistics bear this out – use credit checks on at least some employees,” he said.
The Equal Employment Opportunity Commission has taken a keen interest in this topic in recent years, Walls said. And other advocacy groups are becoming more vocal in calling for a change.
The impact of credit checks
Madeline Neighly, staff attorney for The National Employment Law Project, said the NELP opposes pre-employment credit checks.
“We believe that the use of credit reports in employment decisions has a disparate impact on persons of color and likely violates Title VII,” she said.
Title VII of the Civil Rights Act of 1964 makes it illegal to discriminate against an employee on the basis of race, color, sex, religion or national origin. But the EEOC stipulates that Title VII also prohibits employers from using neutral tests or selection procedures that disproportionately exclude people based on race, color, religion, sex, or national origin, where those tests or procedures are not “job-related and consistent with business necessity.”
Neighly said that NELP has been working with other groups on Credit Catch 22, a project that is calling on the credit reporting agency TransUnion to stop selling credit reports to businesses.
“There’s no data showing that your credit rating, your credit score, or your credit report is going to have any indication of what kind of employee you’re going to be,” Neighly said.
Taylor stopped short of calling credit checks discriminatory, but he sees them as potentially problematic for minorities.
“I think effectively what happens is you’ll find that mostly people who are poor who need jobs the most are the ones who are going to be affected negatively,” Taylor said. “As a byproduct, you’ll find that people in the minority community are going to be affected.”
In January 2012, the unemployment rate for white Americans was 7.4 percent, compared to 13.6 for black Americans.
Violations of the FCRA
Companies should be aware of the many laws – state law, common law, federal bankruptcy laws and the Fair Credit Reporting Act – that govern how credit histories may be used, Walls said.
According to the FCRA, an employer must ask for your permission before requesting a report about you from a credit reporting agency or any other company that provides background information. And if something does come up in your credit history that would cause an “adverse action” – like denial of or dismissal from employment, the employer must notify you in writing about what that information is and who provided it. But that’s not always what happens.
In Adrian Singleton, et al. v. Domino’s Pizza, No. DKC 11-1823, the U.S. District Court for the District of Maryland in January denied the pizza chain’s motion to dismiss an amended class-action complaint. In the case, two delivery drivers argued that Domino’s fired them due to their credit histories, without explaining why.
Walls said that in general, companies that provide credit histories for employers are aware of the requirements under FCRA, but they do have limitations.
“You have to be able to articulate a clear rationale as to why you’re using that report,” he said. “That’s the part that service providers aren’t going to be able to help you with.”
The good news, Walls said, is that most employers only look into credit history once they’ve finalized a list of ideal candidates for a job, so if they’re looking at your credit, you’re probably on the short list for the job.•