The EEOC has filed suit against Kaplan Higher Education Corp., alleging its use of credit histories to screen job applicants has a disparate impact on blacks. The company operates several for-profit colleges and training centers throughout the country.
The credit histories aren’t necessary, the EEOC says, and don’t predict whether the applicant will perform the job well. Kaplan has defended the practice as a way to protect the company against potential fraud and theft.
The EEOC and several state legislators have become increasingly critical of employers using credit histories, and say problems the practice causes have become worse since the economic downturn began. The problem, according to critics: Credit histories can’t tell the whole story of why someone has bad credit.
An EEOC spokesperson said, “It’s not clear that employers who are relying on credit histories know if someone has never paid a bill for 10 years or if someone was a very responsible bill payer for years until they lost a job or someone in their family had a medical emergency and they suddenly couldn’t make a payment. We don’t think it’s a good marker for responsibility in employment.”
The case was filed against Kaplan’s Cleveland-area operations. The company will have to show that the practice is “job-related and of business necessity” to win the case. Also, the company will have to show that there’s no less-discriminatory way to weed out potential thieves and con artists.
Note: Several states have passed laws either barring employers from using credit reports or limiting their use. Employers that choose to use them should use only payment histories, not credit scores. Credit score methodology is proprietary, constantly changing and not designed as a hiring tool.
Make sure a credit history is relevant to the job the applicant is seeking. For instance, positions with fiduciary duties might warrant a credit check. Evaluate other positions on a case-by-case basis.
To show your good faith, evaluate other methods of background checking that might be less discriminatory. Then be prepared to show why they would be ineffective or impose an undue burden on the company.