Monday, March 01, 2010

A Growing Number Of States Moving To Ban Employer Credit Checks On Job Applicants; Alaska Not Yet One Of Them

Because of the growing practice of employers arbitrarily denying jobs to applicants merely because they have low credit scores, a number of states are considering legislation which would ban the use of credit checks by employers as a litmus test of employability. This move is long overdue, but unfortunately Alaska is NOT yet one of those states. Media stories published by the Associated Press and USA Today.

Two states, Hawaii and Washington, already ban credit checks on most job applicants. Sixteen others, including Connecticut, Georgia, Illinois, Indiana, Maryland, Michigan, Missouri, New Jersey, New York, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Vermont, Wisconsin, are in various stages of following suit.

Supposedly, only 13 percent of companies perform credit checks on all potential hires, but the practice is growing. Sixty percent of employers recently surveyed by the Society for Human Resources Management (complete survey results not yet available online, but referenced HERE) said they run credit checks on at least some job applicants, compared with 42 percent in 2006. Although federal law requires employers to get written permission from applicants to run a credit check on them, many job applicants understandably do not feel they are in a position to say no.

Spotlighted in the AP story is Wisconsin's effort, led by State Rep. Kim Hixson. Rep. Hixson drafted a bill in his state after hearing from a constituent, Terry Becker, an auto mechanic who struggled to find work. Becker said it all started with medical bills that piled up when his now 10-year-old son began having seizures as a toddler. In the first year alone, Becker ran up $25,000 in medical debt. Over 4 1/2 months, he was turned down for at least eight positions for which he had authorized the employer to conduct a credit check. One potential employer told Becker, "If your credit is bad, then you'll steal from me."

Hixson calls what happened to Becker discrimination based on credit history and said his bill would ban it. "If somebody is trying to get a job as a truck driver or a trainer in a gym, what does your credit history have to do with your ability to do that job?" Hixson said. He said he knows of no research that shows a person with a bad credit history is going to perform poorly. There's also no research that shows that someone who chooses not to use credit and who has a low credit score as a result will make a poor employee.

Most of the proposed bills are not blanket bans, however. They would prevent employers from using credit reports when hiring for most positions, but allow exceptions in cases where such information could be relevant to the job — for example, if the person is applying to work in a bank or an accounts-payable office. Mike Aitken of the Society for Human Resources Management claims a blanket ban could remove a tool employers can use to help them make good hiring decisions. Aitken pointed to a 2008 survey by the Association of Certified Fraud Examiners that found the two most common red flags for employees who commit workplace fraud are living beyond their means and having difficulty meeting financial obligations.

The problem with the aforementioned survey is that credit score does not merely reflect one's ability to consistently meet financial obligations. One or two failures to pay on time or one bankruptcy can knock down one's credit score and make it unrepresentative of the person's persistent financial capabilities. Even voluntarily cancelling a credit card can drop one's credit score. Furthermore, what about those who choose not to use credit? They will be likely to have a low credit score, but since they don't use credit, the credit score would be an invalid measurement of how they handle financial obligations.

But most employers testifying at a recent legislative hearing in Maryland claimed that they are not interested so much in applicants' specific credit scores, but are more concerned about things like debt collections and legal judgments rather than poor credit because of medical bills or school loans. They also said companies give job applicants a chance to explain their credit situation.

Nevertheless, too many employers have shown that they cannot be trusted with this power, particularly large corporations who have a tendency to hire and fire for political reasons. Corporations in America have become proxy enforcers for political correctness. So I support these legislative efforts to restrict the ability of employers to use credit checks as litmus tests of employability, and urge Alaska lawmakers to consider similar legislation for our state.

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