On Tuesday the UNITE HERE union, along with other labor, consumer and civil rights groups, called on employers and state legislatures to prevent the use of credit reports in hiring, arguing that it is unfair, discriminatory and a poor predictor of employee performance. The campaign is targeting the credit report company TransUnion, which along with Experian and Equifax comprises the “Big Three” of credit companies.
The Huffington Post quoted UNITE HERE spokesperson Annemarie Strassel as saying:
As the only privately-held company of the big three, TransUnion has the ability to stop this practice overnight without worrying about stockholder reaction.
Likely because of targeting by predatory lenders, discrimination by landlords and financial institutions and other systemic factors, various studies show that African Americans and Latinos are disproportionately likely to have poor credit – 5 to 35 percent more likely than whites. Hence the use of credit reports by potential employers can easily result in discrimination in the hiring process. The Equal Employment Opportunity Commission is investigating the issue and has sued two employers over the practice. A press release says:
Given that credit checks are for more senior positions, this practice can also deny people of color access to the higher rungs on a career ladder.
The Huffington Post quotes Lawyers Committee for Civil Rights Under Law director Barbara Arnwine saying:
We believe these barriers are a contributing factor to the drastic unemployment numbers we see for people of color…These credit checks are often used as disguises for other kinds of racial bias.
Credit history as a hiring criteria also creates a vicious circle wherein people who have been laid off are likely to fall behind on bills and damage their credit, with the resulting credit score making it harder for them to get hired and get back on their feet.
The campaign website Credit Catch 22 says:
Many job seekers across the country are caught in a Catch-22: they’re behind on their bills because they don’t have a job, but they can’t get a job because they’re behind on their bills. According to TransUnion, the risk of consumer credit delinquency recently hit an all-time high, which means that credit scores will likely be low for years to come. Our economic recovery depends on putting people back to work, and employment credit checks are currently denying that opportunity to many Americans.
A poll by the Society for Human Resource Management showed about 60 percent of employers use credit histories in hiring, with 13 percent running credit checks for all positions and 47 percent for certain positions.
“White collar” workers are most likely to be subjected to credit checks, according to the poll. Employers argue that credit reports are telling about applicants’ fiscal and personal responsibility and are especially important for jobs involving company finances or confidential information. About a third of employers checked credit before offering a job, the poll found, while about half did checks after a contingent job offer. Permission is needed to access someone’s credit. A power point by the Society for Human Resource Management says:
The Fair Credit Reporting Act (FCRA) authorizes employers to obtain a consumer report for “employment purposes” from a consumer reporting agency (CRA) so long as certain disclosure requirements are met. The term “employment purposes,” means a report that is used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee. For some employers, credit payment records serve as a factor in evaluating an individual’s suitability for a job, while others seek information on driving records, criminal histories, or other background information.
Errors in credit reports are also relatively common, and many people have no idea when they have erroneously (or otherwise) been saddled with bad credit. A 2007 Zogby poll showed 37 percent of people found errors in their credit reports, and often had great difficulty getting them fixed, while an industry study cited errors in 11 percent of reports.
A blog by Gerri Detweiler on the website Credit.com, which offers credit reports, supports the campaign:
Applicants may not get a second chance at a job if they find out after the fact that their credit reports contain mistakes…Bad credit doesn’t mean you’ll be a bad worker. As I’ve written before, there has been limited research into the correlation between credit history and job performance. A study by Dr. Jerry Palmer and Dr. Laura Koppes of Eastern Kentucky University in 2004 found that those with good credit were no more likely to receive positive performance evaluations and were no less likely to be terminated from their jobs. In a hearing before the Oregon state legislature last year, a TransUnion official admitted there was no research “to show any any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud.
On Oct. 10 California became the seventh state to prohibit credit companies from selling reports to employers in most cases, with exceptions for national security and high-level jobs. TransUnion has lobbied against such state legislation, which is now law in Connecticut, Hawaii, Illinois, Maryland, Oregon and Washington state. (California also recently passed a bill banning the use of the controversial E-verify immigration database, except in cases where it is required to get federal funds.)
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Kari Lydersen is a Chicago-based journalist, author and assistant professor at Northwestern University, where she leads the investigative specialization at the Medill School of Journalism, Media, Integrated Marketing Communications. Her books include Mayor 1%: Rahm Emanuel and the Rise of Chicago’s 99%.
