City councilors file to ban employment credit checks

In Massachusetts, those struggling with poverty or significant unexpected financial hardships may find their way to stability barred, precisely because of the very financial situation they are trying to remedy. The reason: credit checks.

Currently, employers may consider an employee or job applicant’s credit history when making decisions around hiring, promotion, discharge and similar matters. But in the case of many jobs, someone’s credit can be damaged for many reasons that do not reflect on the person’s ability to perform the work well. For instance, significant unexpected expenses may be incurred due to a layoff, divorce or medical needs. A further problem: The use of credit report in hiring appears to disproportionately hit blacks and Latinos, among other groups.

This Monday, City Councilors Ayanna Pressley and Andrea Campbell filed an ordinance that would ban employer use of credit checks, including preventing employers from asking applicants to grant permission to perform such a check.

“We need to be eliminating all barriers to employment to ensure people are meeting their full potential and can make contributions civically and to our tax bases,” Pressley said to the Banner. Barriers like credit checks can make it impossible for some people to become self-sufficient, she said.

An exception to the ban is for jobs where the information has clear relevance: for instance, if the hire would handle significant financial responsibilities for the company or work in law enforcement.

When credit is credentials

Credit checks show items such as unpaid debts, outstanding loans, mortgages, credit card purchase, foreclosures and bankruptcies. According to the Washington Post’s Wonkblog, one reason employers may consider credit checks is as an indicator of character: “Many hiring managers believe that a troubled financial history signals untrustworthiness, or a defective work ethic.”

However, many say that bad credit scores do not reflect poor job skills, but rather that a person was hit by an unexpected hardship — such as illness, costs incurred by taking care of a sick relative — and had to run up debt to pay for it. This especially is true for the poor, who have fewer savings to fall back on.

“People have poor credit for many reasons,” Pressley said. “For a life disruption, or because someone is ill and you went into a tailspin for being their caregiver. You could have poor credit because you were laid off. Or because you were preyed upon in such a fashion that you took on a mortgage at a high interest rate that should never been granted and you were set up to fail.”

The past also can haunt you: Bad credit can stay on a report for seven years. This can be especially problematic for minorities, who often were targeted with subprime loans during the foreclosure crisis.

A representative of the nation’s largest credit reporting companies said that there is no evidence that credit reports reflect on job performance.

In 2010, Eric Rosenberg, director of state government relations for TransUnion, gave testimony to Oregon legislators in which he stated, “At this point we don’t have any research to show any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud.”

Disproportionate barrier

Compounding the problem is evidence that the effect of using credit reports is disproportionate. Those hardest hit by employer credit checks are blacks, Latinos, women, seniors and the poor, according to information publicized by Sen. Elizabeth Warren. Another group with disproportionately low credit scores are households with children, said Oren Sellstrom, litigation director of the Lawyers Committee for Civil Rights and Economic Justice.

The use of credit scores in employment decisions can perpetuate the wealth gap, Sellstrom added.

“African American and Latino communities in general have less capital and are lower-wage earners because of predatory lending, job discrimination, housing discrimination — both past and present — that have created this racial wealth gap in the country,” he told the Banner. “All of those things can create lower credit scores. Then when you use that credit score to screen someone out of employment, that creates a vicious cycle.”

Frequent errors

Even if the scores were useful judges of character, credit reports often are riddled with errors that go unnoticed and which credit-reporting agencies are slow to correct once notified, according to an op-ed by Sen. Warren and U.S. Rep. for Tennessee Steve Cohen. In 2013, the Federal Trade Commission reported that one in four consumers had errors on their credit reports that could affect their credit scores. ThinkProgress noted that the process for fixing an error — which may involve contacting several different credit bureaus — “can be convoluted.”

Employer practices

A 2012 Society for Human Resource Management survey of a random selection of SHRM members across the nation found that 47 percent of respondents used credit background checks when making hiring decisions. Some employers use them in promotion decision as well, according to job connector site Monster.com.

The practice seems to happen enough locally that some city councilors are concerned. Pressley and Campbell said they heard anecdotally of applicants denied non-financial jobs based on these checks, and Campbell’s attention was drawn to the matter in part because of a call from a constituent who was worried about it.

“We get the sense that it’s happening more so than we probably think,” Campbell said in a Banner phone interview. “The question is if people are reporting it.”

However, Chris Geehern, executive vice president of the Associated Industries of Massachusetts, said that statewide, the practice may be uncommon.

“Employers look at credit reports very infrequently. One of my colleagues estimated 2 percent,” Geehern told the Banner.

AIM’s membership includes 4,500 employers, Geehern said, and information from them suggests that employers tend only to look at credit checks for high-level positions and positions with financial authority. Referring to credit reports in hiring other positions, such as marketing or sales, is unusual, he said.

National problem

On the national stage, Warren and Cohen are pushing for an Equal Employment for All Act that would proscribe employers from requiring credit history disclosures from job applicants, except in situations where the position requires national security clearance.

Campbell said pushing for a city law allows for a change to be enacted more quickly than waiting for the federal government and can bring more attention to the issue on the national scale.