How employers use credit reports

A person’s history of paying off debts such as car payments, mortgage debt, student loans, credit card accounts, and other repayments is summed up in a credit report. Credit reports help lenders determine whether to offer a prospective borrower a loan, as well as what interest rate to offer. However, data suggest that it is common for employers to use a potential hire’s personal credit report to justify hiring decisions. In fact, a 2013 survey found that credit checks have become a barrier to employment for some, with 1 in 10 of survey respondents who were unemployed reporting that they had been told they were not qualified for a job because of information in their credit report.

The Fair Credit Reporting Act governs how third parties like employers can use consumer reports, such as credit reports, to collect information from individuals. It also provides avenues for employees and potential hires to file complaints against employers who are violating the FRCA. Although employment credit checks are legal under the FRCA, a federal law, employers must receive written permission from the person whose credit report they are seeking to evaluate. Additionally, an individual must be told if personal credit information has been used against them, as well as be given the name, address, and contact information of the agency that provided the information. The U.S. Federal Trade Commission enforces the FRCA and has provided a summary of individuals’ rights under the FRCA, as well as contact information for other enforcers.

Several states have taken additional measures to limit employers’ use of credit information in employment decisions. In Washington, D.C., Councilmember Kenyan R. McDuffie introduced the Fair Credit History Screening Act of 2015 in June 2015. The proposed legislation would forbid employers from using a potential hire’s credit history to inform the hiring process before a conditional offer is made. An offer could still, however, be terminated for a “legitimate business reason” based upon the “specific duties and responsibilities necessarily related to the employment sought or held by the applicant.” The bill complements the FRCA, as well as the Fair Criminal Record Screening Amendment Act (also known as “Ban the Box”), which forbids employers from discriminating against potential hires or employees based upon their criminal records.

NEWS ARTICLES

Employment credit checks a potential hazard for workers
The Times of Northwest Indiana

Some companies elect to conduct credit checks as part of the employment-screening process. Researchers note there’s no evidence that this practice, which is limited in 10 states, helps employers find trustworthy workers. Advocates contend that employment credit checks raise privacy concerns and may actually cause employees to lose out on good applicants.

D.C. Council weighs bill that would restrict credit checks during hiring process
Washington City Paper

D.C. Councilmember Kenyan McDuffie introduced in June 2015 a bill that would prohibit employers from running a credit check on job applicants until after a conditional offer of employment is made. The Fair Credit History Screening Act of 2015 will strive to ensure that credit screening is not a part of the hiring process. “[Being judged by credit history] places burden on folks who need employment the most, especially when it has nothing to do with job at hand,” McDuffie said at the bill’s introduction.