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Employer Credit Checks Draw

Increasing Scrutiny

Special Report From: EasySmallBusinessHR.com

Running employer credit checks on potential hires? It’s a practice

drawing increasing criticism, prompting the Equal Employment

Opportunity Commission (EEOC) to recently hold a hearing on the

issue.

This nationwide scrutiny of employee credit checks has spurred

four states to pass legislation that limits their use, while 20 other

states and Congress have introduced similar bills. So why the

scrutiny?

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Opponents argue the checks prevent applicants with poor credit

from getting a job.

The recent economic crisis has created a large pool of

unemployed workers with damaged credit and high levels

of debt. Opponents argue that employee credit checks

have become a barrier to those workers finding a new job.

A few studies suggest that some groups, including

African-Americans and Latinos, tend to have lower credit

scores.

A representative from the National Consumer Law Center

testified to the EEOC that these types of issues make

employer credit checks “harmful and unfair to American

workers.”

Others question whether a credit score is a good indicator

of how an employee performs on the job. Opponents cite

an Eastern Kentucky University study that suggested a

poor credit history was not an accurate indication of job

performance.

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Employers argue credit checks flag potential problems.

For many companies, credit checks are an important screening

tool often used in conjunction with criminal records and

identity verification services. Employer credit checks typically

include information regarding credit history, bankruptcy

filings and prior employment information.

Those reports, however, often do not include a credit score,

which means that most employers never even see the number

that some research suggests may indicate racial disparity.

Advocates of employer credit checks argue that the practice

prevents loss and reduces risk by identifying the potential

fraudsters who might steal or embezzle company resources.

They cite evidence that suggests there may be a link between

an employee’s financial circumstances and the propensity to

commit fraud.

For example, nearly half of fraud criminals in one study were

having money problems and about the same number lived

above their means, according to the Association of Certified

Fraud Examiners.

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Employer credit checks may also protect a company from

litigation.

For example, a check might uncover an in-home healthcare

worker applicant who may be more likely to steal from an

elderly client, a crime that can trigger a civil suit against the

employer.

Stay updated on employee credit check legislation in your state.

State laws vary widely. While some states limit how employers use

credit checks, they may also offer exemptions for specific sectors

or industries.

For example, Illinois law exempts state and local government

agencies as well as debt collectors and insurance agents from credit

check limitations.

Start protecting your business today by staying up to date on

employer credit checks legislation.

Recommended Background Checking Resource: "Sleuthing

101: Background Checks and the Law".

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