Credit reports are used to determine creditworthiness by banks and other lending institutions, and insurance companies also use credit reports to determine customer rates. But should credit reports be used in the hiring process? Sure, at one point a credit report might have been able to tell you a lot about how responsible a prospective employee was, but after the Great Recession, I don’t think that this still holds true.
Millions of responsible Americans were affected by the recession and when faced with the decision of putting food on the table or making a loan payment, they made the obvious choice of feeding their families. As a result, consumers that made this choice have lower credit scores, and if these scores are used to deny an employment application, a vicious cycle begins. If you can’t get a job, you don’t have the money to pay delinquent loans and improve your credit score.
The good news is that lawmakers in 10 states have moved to ban employers from running a credit check on prospective employees. Employers in California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington are not allowed to run a credit check on applicants. The Nevada law, which goes into effect in October, takes this ban a step further and allows consumers to sue a company that uses their credit report to deny employment.
According to Bloomberg Businessweek, “At the federal level, Representative Steve Cohen (D-Tenn.) introduced a bill this February that would ban employers from using both credit checks and bankruptcy filings when evaluating employees.”
Cohen’s proposed legislation does allow credit checks for certain positions including roles that involve national security, FDIC clearance or tremendous financial responsibility.
“Using a job applicant’s credit history to deny employment is not fair because personal credit history is not an accurate predictor of job performance,” said Cohen. “We should be doing everything in our power to help people find jobs during these tough economic times – not hinder them.”
Unfortunately, H.R. 645: the Equal Employment for All Act, is stuck in committee. The bill tracking website GovTrack.us gives the bill a 1 percent chance of getting past the committee stage. Until Congress is at a point where they can seriously consider such legislation, I hope that more states follow suit and ban employers from pulling prospective employees' credit reports.
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