|
Pre-Screening Credit Report Tool in Jeopardy
Over the past decade, employers have upped their use of pre-screening tools to increase the odds that they are getting the best employee they can. One of these tools is increasingly coming under fire – the use of credit histories in making hiring decisions. The Fair Credit Reporting Act (FCRA) came into effect in 1970 and regulates the collection, distribution, and use of consumer information, including consumer credit information. FRCA puts stringent requirements in place that employers must follow when seeking an employee or applicant’s credit history. First, the employer must obtain written consent from the employee or applicant. If a decision is made to not promote or hire the person in question, based on the credit report, the employer is required to provide a copy of the report to the person. Additionally, the employer must let the employee or applicant know his or her right to challenge the report under the FCRA.
Why are legislators being pressured by their constituents to do away with this law?
The economic downturn has a big part in this controversy. When so many workers lost their jobs in the recent recession, many were left with stacks of bills and no way to pay them. This, in turn, damaged their credit history. With unemployment at record levels and some displaced workers having to take jobs at salaries much less than they had before, the feeling seems to be that the law is much too restrictive and unfair to those in the job market.
There are also concerns that credit histories are of often inaccurate and come from a plethora of databases that are sometimes out of date. These include inaccurate or incomplete courthouse records. Concerns about privacy issues and identity theft are also part of the pre-employment credit history issue.
According to SHRM, these concerns are unfounded. They point out that the use of credit histories for pre-employment hiring has remained stable over the past five years and are “mostly used sparingly, legally, and wisely in hiring decisions.” Furthermore, they contend that the FCRA Act “already mandates a clear process for checking credit history that includes candidate authorization and other protections.”
However…
The recent rash of legislation to restrict the use of credit reports includes the Equal Employment for All Act (H.R. 3149), which was introduced in Congress last year. The Act sought to amend the FCRA to restrict the use of credit reports. With the increasingly polarized politics of the current 112th Congress, the focus shifts to the state legislatures and their movement on current HR issues. Already, Hawaii, Illinois, Oregon, and Washington have laws on the books that restrict the use of credit reports in hiring decisions. Maryland lawmakers just narrowly voted down a similar bill twice.
In legislatures controlled by Democrats, the focus is on legislation that would prohibit the use of credit checks in the hiring process, as well as proposals mandating certain employers to provide paid sick leave to their employees. In contrast, employment discrimination is a topic surfacing in a number of states, regardless of which party controls the legislature.
http://www.shrm.org/Advocacy/GovernmentAffairsNews/HRIssuesUpdatee-Newsletter/Pages/021111_2.aspx
http://www.shrm.org/Publications/hrmagazine/EditorialContent/2011/0211/Pages/0211roberts.aspx
At the U.S. House hearing, Denston says, supporters of H.R. 3149 were concerned about discrimination against minorities, who are more likely to have credit problems because of the recession.
Rising Number of Complaints
There’s some evidence—though not a lot—that the state laws address a real problem.
In 2009, the U.S. Equal Employment Opportunity Commission (EEOC) received more complaints than in previous years about job discrimination due to the use of credit histories, according to Chair Jacqueline A. Berrien. An exact number was not available, but the total was in the hundreds, she says. The commission has a mandate to investigate these allegations and can pursue legal options, usually class-action suits.
In December 2010, for example, the commission announced a class-action suit against Kaplan Higher Education Corp., a nationwide provider of postsecondary education, alleging it engaged in a pattern or practice of unlawful discrimination by refusing to hire a class of black job applicants nationwide. The suit alleges Kaplan rejected job applicants based on their credit histories and that this practice has an unlawful discriminatory impact because of race and is neither job-related nor justified by business necessity.
In another example, the EEOC filed a class-action suit against Freeman Cos., a Dallas-based event planner, in 2009, alleging that Freeman engaged in a pattern of discrimination under Title VII of the Civil Rights Act of 1964 by rejecting black, Hispanic and female job applicants on the basis of credit histories. The case, EEOC v. Freeman, is pending.
In October 2010, the commission held a public hearing on whether credit history has or could have discriminatory impact, Berrien says. “Screening is affecting many people because of the large number now seeking employment,” she adds.
Some witnesses argued that:
- The use of credit reports is a growing practice that is unfair to
workers.
- Misuse of credit histories could prevent economic recovery for millions.
- Credit reports have inaccuracy rates that are unacceptable for
use in hiring decisions.
Witnesses cited studies that purport to show that credit history does not predict job performance.
| 
