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Where s the Evidence

One who bristles at the argument that employers' use of credit history unfairly targets minorities or is likely to be a pretext for illegal discrimination is Jeremy Estenson, who served as a lobbyist for the Minnesota Chamber of Commerce during the 2010 legislative session. He opposed the Minnesota bills to protect credit under the Human Rights Act. "I have heard the argument that women and minorities may disproportionately have credit issues because they're targeted by predatory lenders, but I think the burden is on the advocates to demonstrate that these things are actually happening," he argues. "What I don't want to see happen is putting stuff into law because of something that has happened only once or twice."

Furthermore, says Estenson, the use of credit history by employers in Minnesota is not as widespread as some have suggested."We actually surveyed our membership, and found out that very few of our members do it." He also doubts the claim that employers are increasingly using credit to screen applicants at all levels. "It costs money to run a credit check," he points out. "I don't see why employers, to hire someone in a custodial position or whatever, would pay the 50 bucks to have their credit pulled."

In most cases, an employer who requests a credit report is not likely to do so unless the employer has already interviewed the candidate and is about ready to make a job offer, or perhaps, a conditional job offer is already on the table, he maintains. If a credit report turns up negative information at that stage of the hiring process, the employee will probably have the opportunity to offer an explanation of any past credit problems, Estenson believes. "If you like everything about this person to the point where you're willing to offer them a job, contingent on their credit score, you're probably invested enough to take the time to listen to a reasonable explanation," Estenson says. "I think 99 percent of the time common sense prevails and the employer will say "oh, okay, I understand.'"

Consumer advocates like Ron Elwood doubt that employers are likely to be so understanding. "There is always an opportunity to explain things," says Elwood, staff attorney for the Legal Services Advocacy Project, which provides legal aid for low-income Minnesotans (see Elwood interview). "But once you've got the Scarlet Letter, the explanation may not matter anymore."

Credit and character

The stigma that comes with a poor credit score - what Elwood calls "the Scarlet Letter" - is a barrier that he and other advocates believe has no basis as an indicator of an employee's character, or as a predictor of job performance.

"I think it's 60 percent of all bankruptcies are based on medical expenses, and in something like 80 percent of those cases, the people actually had medical insurance," says Nicholas Slade, a partner in the law firm of Barry & Slade, LLC, which has sued abusive debt collectors. "So the fact that they or a family member may have had severe medical problems, and incurred an enormous amount of debt, has no reflection on the ability of the person to do the job. It speaks to a completely different set of circumstances which were well beyond their control."

There is no indication that employees with lower credit scores have poorer job performance, or are more likely to commit a crime - another concern of employers, according to Klein. In testimony before Congress on the Equal Employment for All Act, Klein cited a 2003 psychological study that examined the credit reports of nearly 200 current and former employees in the financial service areas of six companies. The study found that credit history was not necessarily a good predictor of job performance or turnover, Klein noted.

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