State Sen. Shirley Turner has proposed a bill that would prevent employers from using credit checks during the hiring process in many cases. Citing the downturn in the economy, Turner and other bill supporters note that many people have less than perfect credit, and that shouldn’t keep them from getting jobs.
The legislation would allow employers to run credit checks on applicants only if good credit is a bona fide occupational qualification for the job. The bill also specifically exempts law enforcement agencies from its restrictions.
Some view credit checks as valuable tools in discerning an applicant’s character. The Society for Human Resourcereports that 60% of employers run credit checks on employees.
A 2008 study by the Association for Certified Fraud Examiners found that most employees who steal from their company are first-time offenders who often have credit difficulties.
If passed, employers that violate the law would face fines of $5,000 for a first violation and $10,000 for each subsequent offense. The Senate Labor Committee has approved the measure and it is headed for a vote before the full Senate.
Note: The use of credit checks in hiring has come under increasing attack in recent years. Given the prevalence of predatory lending in minority communities, credit checks could disproportionately affect minorities in violation of the Civil Rights Act.
Employers can defend themselves against such charges by showing the credit check was a business necessity because of the nature of the job.
It’s also important to consider only quantifiable credit problems (such as late payments and failing to pay bills altogether). Don’t base decisions on an applicant’s overall credit score.
Credit rating companies use many factors to determine credit scores, and they never release their calculation methodologies because they consider that proprietary information. That makes it almost impossible for employers to explain in court why they decided to deny someone a job on the basis of a credit score.
Furthermore, credit scoring models are constantly changing, which makes them easy for an employee’s attorney to challenge.