Fairness concerns and fears of being permanently locked out of the job market because of bad credit have sparked a flurry of bills across the nation aimed at limiting the use of credit scores in hiring decisions as high unemployment erodes the creditworthiness of millions of Americans. But the move has been resisted by employers, credit reporting bureaus and human resource organizations.
In 28 states, 58 bills to limit the use of credit reports in hiring are under consideration. A Colorado bill (H.B. 1127) that would have limited the use of credit reports for hiring purposes has been shelved indefinitely due to pressure from the state’s business lobby.
The use of consumer credit reports in hiring decisions has become a prominent concern in the recent economic slump as millions across the nation saw their ratings suffer due to job loss and other problems. Senator Morgan Carroll of Aurora, one of the H.B. 1127’s sponsors, wrote in an email, “with record job loss, a record number of people took a hit to their credit.” And a mark on a credit report can keep a person from getting a new job.
But the credit report remains a crucial tool in assessing potential hires, according to the Society for Human Resource Management. “There are no simple or effective alternatives to credit checks for use by HR professionals as part of their evaluation of job candidates, the SHRM said in comments to the U.S. Equal Employment Opportunity Commission (EEOC).” Senator Carroll disagrees: a credit report “is not a valid indicator or predictor of job skills.”
Carroll’s concerns about the use of credit reports are informed by broader social policy issues, “Use of credit scores in hiring risks creating a permanent under-class of chronically unemployed people. It disproportionately punishes single parents, people going through divorce, facing family medical issues etc.”
Inability to pay due to job loss and prolonged unemployment or a major illness can spell financial doom for the average Colorado family—but credit reports do not distinguish causes. Failure to pay bills on time is a strike on a credit report, which, then, can become a bar on further employment, especially in a competitive job market where even the smallest negative indicator may turn off a potential employer.
Nationally, there is concern that credit reports are being used unfairly. Asked whether employers are using credit reports to weed out applicants in an unfair manner, Beth Givens, Director of Privacy Rights Clearinghouse wrote, “Yes, very much so.”
The Colorado bill would have restricted the use of credit reports to cases where the information contained in the report would be substantial related to the job: an employer could request a credit report for employees who would be given access to money or other assets, trade secrets or confidential information. Managers, Law Enforcement and those working in positions requiring such disclosure by other law would also have to consent to credit report disclosure.