A bill proposed by Rep. Steve Cohen (D-TN) aimed at repealing the ability of businesses to use job applicants’ credit reports in the hiring process entered hearings in the Subcommittee on Financial Institutions and Consumer Credit on Sept. 23, 2010.
This is the first step in the legislative process for the bill that, if passed, would serve to limit powers guaranteed by the Fair Credit Reporting Act. Currently, this act allows businesses to run credit checks on current or prospective employees and use that information as criteria for hiring, promotion and other personnel decisions. While credit checks may only be done with the permission of the individual investigated and any adverse decisions may be protested, doing so could serve to alienate employers. Simply having credit information available can influence decision makers as well, no matter if it is an official consideration or not.
“Even if there is no overt bias on the part of an employer against an applicant based on their credit report, there is the potential for a subconscious bias against those who have more negative data on their reports versus those who do not,” wrote Rep. Luis Gutierrez (D-IL), chairman of the subcommittee holding the hearings in a statement. “You simply cannot tell a person’s character, integrity or how well they will perform their job by looking at their credit report.”
With unemployment in the United States at 9.6% in September, such practices make it difficult for the unemployed to find work. This hardship is exacerbated by the facts that unemployment stood at 4.7% in September 2007 and an increasing number of consumers can be characterized as having “bad credit” following the Great Recession. These factors considered in concert with the provisions of the Fair Credit Reporting Act indicate that the precise economic hardship that put many consumers out of work is also keeping them from landing another job.
It is in this context that H.R. 3149, the Equal Employment for All Act, proposes to prohibit employers from using or obtaining a report detailing one’s credit standing, capacity, or worthiness for hiring and negative actions with regard to current personnel. Such limits would not apply to employment requiring FDIC clearance, employment within state or local government already requiring a credit report or a “supervisory, managerial, professional, or executive position at a financial institution,” according to the bill.
Hearings on this bill were held Sept. 23 and included testimony from Rep. Steve Cohen and individuals representing the National Consumer Law Center, the Society for Human Resource management, the U.S. Chamber of Commerce and the NAACP.
Aside from the support it would provide to those hit especially hard by the Great Recession, the bill’s backers hope that it will help nullify the particularly adverse affects of credit reports on racial minorities.
“Along with many other in Congress, I am concerned that relying upon credit reports will continue to have a harmful effect on many, especially on communities of color as minorities have disproportionately worse credit reports even when income is taken into consideration,” Gutierrez wrote. “No fewer than 8 separate studies in the past 15 years conducted by the Federal Reserve, the Federal Trade Commission, the Brookings Institution and Fair Isaac have documented the disproportionately lower report quality of minorities. The Equal Employment Opportunity Commission has repeatedly expressed their concern that the use of credit reports for employment purposes might violate title VII of the Civil Rights Act.”
The bill’s benefit and, in turn, the possibility of eventual ratification are also matters of discussion among members of the personal finance community. Odysseas Papadimitriou, CEO of WalletHub.com, sees the rationale for both using and not using credit reports in employment decisions. Some consumers have low credit scores, he says, because they have acted irresponsibly while others may have simply encountered an emergency that most people in their situation would not be able to deal with without entering into unmanageable debt. He believes that it would benefit businesses to know which potential hires had acted fiscally irresponsible in the past “but it’s hard for an employer to draw the line” between the two causes when evaluating a candidate’s credit report. Likewise, he says that anyone can encounter extenuating circumstances that damage their credit. “No one has an unlimited financial safety net,” he said, “except maybe Bill Gates.”
Any eventual ratification of the Equal Employment for All Act still remains far off, however. The next step, if and when it makes it out of committee, is consideration by Congress at large.
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