One Less Privacy Intrusion: Bill to End Pre-Employment Credit Checks

Will the Equal Employment for All Act make it out of the House Committee on Financial Services when Congress reconvenes this fall? The bill, HR 3149, would make it illegal for employers to use the personal and private credit reports of American job applicants when making hiring decisions for most positions.

Bad credit means no job and no job means bad credit. Second chances in Hollywood and professional sports occur every day, but the rest of America is locked down in a modern-day debtors’ prison run by credit bureaus and ruled by corporate greed. A two-class America of the elite and the poor is becoming more and more a reality, thanks in part to the continuing practice of pre-employment credit checks.

In today’s highly charged political environment, it’s uncommon for any issue to have the overwhelming support of almost 90 percent of the American people, but HR 3149 does.(1) On top of its popular support, there are a wealth of studies, numbers and just plain logic that support passage – especially at this critical juncture in the Great Recession.

Nonetheless, lobbying efforts from the big three credit bureaus, the US Chamber of Commerce and 19 other business groups have kept the measure stalled for more a year. Swayed by a years-long, multi million dollar spin financed by the big three credit bureaus, businesses are clinging to the idea that credit reports can reveal an applicant’s propensity for fraud and theft in the workplace. The truth, however, is that, by the numbers, Americans cannot afford to buy their argument.

Fair, Isaac and Company (FICO) just reported that as of April 2010, 43.4 million of America’s 170 million consumers had credit scores below 599. That’s more than 25 percent of all consumers in this country, up from the pre-recession tally of 15 percent, or 25.5 million consumers. FICO’s benchmark for “bad credit” is anything under 650, and anything under 700 is considered a “moderate credit” number. The number of recession-damaged Americans with credit scores under 700 is now 75 million, or 44.1 percent of consumers.

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As horrific as 75 million sounds, consider that credit scores do not appear on the employer version of credit reports, and HR staff generally have little or no training in how to read and evaluate a credit report – employers’ evaluations, absent any standard unit of measure, are completely arbitrary. For example, should someone with good credit (whose accompanying score does not appear on the employer’s report) be passed over for a job because the person responsible for hiring judged them for missing a car payment five years ago?

Credit bureaus contend that they’re doing consumers a favor by withholding their credit scores from employers, but that omission means any employer who chooses to make use of an already misleading tool is also engaging in pure guesswork – and that threatens to impact untold numbers of Americans whose scores fall at the margins of what is considered acceptable.

So, where is the connection between credit scores and workplace theft that justifies the practice of pre-employment credit checks in the first place? Apparently, there is none. When the issue was debated in Oregon, where legislation similar to HB 3149 is now law, a TransUnion vice president begrudgingly admitted during sworn testimony that his company has zero statistical evidence to document that employees with bad credit are any more likely to steal or commit fraud than workers with perfect credit. Clearly the findings of a study by any credit bureau would be suspect, since they all stand to make millions of dollars based on employers’ belief in just such a correlation, but not even a questionable, industry-funded study exists – just marketing pamphlets.

TransUnion and the other two credit bureaus have also been known to cite a study by a fraud prevention firm that documents that people “living beyond their means” steal and commit fraud more often than others; what they fail to mention is that virtually every economic study for the past more than 20 years shows Americans have one of the highest debt to income ratios in the entire world. By that standard, then, every single American who needs to work is a fraud and theft risk.

Some 26 million Americans are unemployed or underemployed and nearly every indicator – from economic projections to record foreclosures and the highest number of bankruptcies filed since 2005 – adds up to millions more damaged credit reports to come. Nonetheless, with five applicants eager and available for every single job opening that exists in America, employers have little incentive to avoid economic discrimination and will continue to use credit reports as a screening tool as long as it remains legal.

Employers are deploying employment credit checks more and more frequently – at a time when Americans should be pulling together. Since the practice was first introduced in the early 1990s, the rise in the use of credit reports as an employment evaluation tool has accelerated each year. During that same time period, American CEO’s such as Bernie Ebbers, Kenneth Lay, Ken Lewis, Richard Fuld and Bernie Madoff were pulling the biggest corporate heists in the history of American capitalism. Did any of these “business leaders” ever undergo an employment credit check? In the unlikely event that they did, it’s hard to imagine deep-pocketed executives with anything to fear from their credit scores. But the companies these CEOs ran routinely pulled credit reports on rank-and-file applicants to gauge their propensity for stealing and committing fraud. Today, even according to numbers published by the Society of Human Resource Management (SHRM) – which supporters of the bill have identified as one of its key opponents – 73 percent of employers pull a credit report before making an employment offer.

There is no lack of ideological factors that could help hasten HR 3149’s passage. The bill stands to protect consumer privacy, curtail greed and end one of many discriminatory practices that disproportionately impacts minorities – or, more dramatically, to forestall the rise of an Orwellian world overseen by Big Brother. Meanwhile, for those who shrink from ideologies when it comes to lawmaking, we have the numbers.

After more than a year, HR 3149 will finally be debated in Congress. Now that HR 3149 is on your radar, you have a choice. You can demand that Congress pass an equitable, sensible solution to this national crisis, or you can remain silent. The “freedom” to work has been restored by legislation outlawing pre-employment credit screenings in Hawaii, Washington State and Oregon, but that’s not doing anything for Americans in the other 47 states. Now is the time to restore the right to work and the right to privacy to all Americans.

Footnote:

1. The MSNBC article ran back in the spring and we tallied the responses. If you wanted to be extremely safe you could say well over 75 percent, but neither number is going out on a limb at all whatsoever.