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Credit History: Is it any of your employer's business?

These days, more and more companies are running credit checks on some or all job seekers. But does bad credit equal poor performance? Is credit screening a matter of business necessity or discrimination?

From the Rights Stuff Newsletter, Winter 2011

Could your credit score cost you a job?

DebtorSome call it a Catch 22: You lose your job and can't pay your bills. Your credit rating plummets. You look for a new job but you can't find one - employers view your poor credit score as a statement about your character and a risk factor they would prefer to avoid. So you slide deeper into debt, and become even less desirable in the eyes of potential employers - a cycle from which you fear you may never escape.

There is reason to be afraid, consumer advocates say. In Minnesota and all but four states, employers are generally permitted to use a job applicant's credit score in making a hiring decision. Only Washington, Hawaii, Illinois and Oregon have laws that in most cases prohibit an employer from considering a candidate's credit.

These days, more and more employers are inclined to run credit checks on job seekers. A 2010 survey by the Society for Human Resource Management found that 60 percent of employers now check the credit scores of at least some applicants. Back in 2003, only 35 percent of employers reported checking credit scores, and in 1996 it was only 13 percent. To look at the data another way, 40 percent of employers don't ask for credit data. Yet some employers - 13 percent in the 2010 survey - perform credit checks on all job applicants.

Use of credit data in screening job applicants has been examined. In 2010, bills were introduced in 18 states, including Minnesota, which would have limited an employer's ability to use credit information. On the federal level, a bill was introduced in the U.S. House of Representatives, The Equal Employment for All Act (H.R. 3149), that would have prohibited the use of consumer credit checks against prospective and current employees nationwide, with some exceptions for jobs that involve national security or positions of significant responsibility at financial institutions.

Though the federal bill raised the issue and rallied testimony from determined supporters and opponents, it died in committee and never came up for vote. On the state level, efforts to restrict employers from checking employee credit scores succeeded in only two of the 18 states where bills were proposed - in Illinois and Oregon.

But the controversy is far from over, and in early 2011 the issue continues to gain momentum from those who believe Americans are being unfairly denied employment due to employer credit screening, and those who are believe that employers must be allowed to use credit scores as at least one tool in the hiring process.

The Equal Employment for All Act returned for debate in Minnesota. On Jan. 19, 2011, Rep. Steve Cohen (TN-9), who sponsored the bill last year, introduced it again (as H.R. 321). As per last year's bill, H.R. 321 would amend 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, with some exceptions. One of the bill's co-sponsors is Minnesota Rep. Keith Ellison, who also co-sponsored the bill in the previous Congressional session. "Using a job applicant's credit history to deny employment is not fair because personal credit history is not an accurate predictor of job performance," said Cohen in a press release. "We should be doing everything in our power to help people find jobs during these tough economic times - not hinder them."

Whatever the bill's chances in Congress, a more pivotal battle may take place in the Courts. In December 2010 the Equal Employment Opportunity Commission (EEOC) filed an unusual nationwide lawsuit against Kaplan Higher Education Corp., alleging that its use of credit history discriminates against black job applicants. The EEOC contends that since at least January 2008, Kaplan has routinely rejected job applicants because of bad credit, and that this practice has an unlawful discriminatory impact because of race, in violation of Title VII of the Civil Rights Act of 1964. It is a violation of Title VII to use hiring practices that have a discriminatory impact because of race and that are not job-related and justified by business necessity, according to the EEOC.

The EEOC lawsuit seeks a permanent injunction to stop Kaplan's use of credit histories in the hiring process or in other employment decisions, as well as lost wages, benefits, and job offers for candidates who were screened out by Kaplan's use of credit information.

The issues raised by EEOC's suit and Kaplan's response go to the heart of the debate over whether employers' use of credit histories in evaluating job applicants is unfair and should be restricted, or - is justified and a sound business practice. In addition to arguing that Kaplan's use of credit data is discriminatory, the EEOC maintains that the practice is "neither job-related nor justified by business necessity." Kaplan emphatically disagrees. In public statements, Kaplan has stated it is an equal opportunity employer, proud of its diverse work force, and defends its policy of typically conducted background checks on all prospective employees. "The checks are job-related and a necessity for our organization to ensure that staff handling financial matters, including financial aid, are properly screened," Kaplan maintains.

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