Last month the Equal Employment Opportunity Commission (EEOC) conducted a public hearing about employers’ use of credit history when making hiring decisions. The goal of the EEOC was to determine the extent of the practice, its effectiveness, and potential impact on various populations.

While some states have restricted use of credit reports in hiring decisions, most have not taken action against pre-employment credit checks. According to the EEOC Chair at the start of the hearing “questions have emerged about the fairness of the practice, whether the results…correlate to job performance and whether there are any adverse impacts.”

A representative from the Society for Human Resource Management (SHRM), a respected industry association, told the commission that the federal government should not eliminate an employer’s use of credit histories to make hiring decisions. Christine Walters said, “SHRM believes there is compelling public interest in enabling our nation’s employers…to assess the skills, abilities and work habits of potential hires.”

She also brought to the commission’s attention that employers typically do not conduct background checks and credit checks on employees until they are about the make a job offer. This contradicts the opposing belief that employee credit checks are discriminatory or represent a form of economic segregation.

SHRM Research on Employee Background Screening

• Recent data revealed that only 13 percent of organizations surveyed conducted credit checks on 100% of job candidates. 47 percent take the credit history of candidates for selected jobs into consideration.
• 91 percent of employers conduct credit checks only for jobs with financial or fiduciary responsibilities; 46 percent check the credit histories of senior executive candidates and 34 percent only check those who would have access to confidential employee information.
• Four out of 10 organizations do not conduct credit checks.
• Credit history ranked lowest on a list of criteria employers use in hiring decisions.
• Medical bills are not typically considered when scrutinizing employee candidates’ credit histories. And only 11 percent of respondents consider home foreclosures.
• The vast majority of employers—87percent—allow candidates the opportunity to explain their credit check report results.

Walters also told the EEOC that while employers typically don’t tell candidates they can’t work for them because they have bad credit, they want the option to use credit histories to help determine which candidate is the most qualified. The Commission did not disclose whether it will issue any guidance on the issue of employers’ use of credit histories.

Oregon’s Legislature is considering a bill that would prohibit pre-employment credit screening unless it is relevant to the job. Hawaii and Washington have enacted similar limits.

The proposed bill allows banks, credit unions, and public safety agencies to continue screening applicants’ credit histories; for the rest of the state’s employers, credit checks could be a thing of the past. Other pre-employment background checks, like criminal records, education verification, and reference checks would still be allowed.

Those speaking in favor of the bill’s passage cite the floundering US economy, saying it’s unfair to conduct credit screening during a recession. Proponents also claim no connection between bad credit and unethical workers.

While the recession has certainly increased the numbers of applicants with questionable credit histories, the Oregon bill seems to assume that employers do not consider anything but credit checks when deciding whether or not to hire an applicant. The employers we hear from use credit screening for cash-handling positions, to protect sensitive confidential data, and as an indicator of judgment and responsibility.

Smart employers take into consideration every aspect of an applicant’s skill, education, and character. In many cases, the credit check is the last step before hiring. Many employers use it as a guide and communication tool for applicants that have already passed several steps in the hiring process. A few blips on a credit report due to medical expenses and job loss would be excused by many employers—and a bad economy doesn’t mean the information should not be available to employers who need it.

Employers need all the tools available to them to make good hiring decisions. Credit checks help many thousands of employers protect their companies, their existing staff and the customers they serve by ensuring only properly screened employees handle cash and sensitive data. Banning credit checks will not lead to higher employment.