Communications of the ACM
Employer Credit Checks on Job Seekers Draw Scrutiny
Credit: Premier
The common practice of checking the credit histories of job applicants is coming under greater scrutiny. Already, four U.S. states have passed laws in the past three years that limit the practice, and similar bills have been introduced in 20 other states and Congress. On one hand, experts point out that poor credit could become a barrier to landing a job or have a potential discriminatory impact on hiring. On the other hand, employers contend credit checks help them evaluate candidates and protect against fraud. The issue is a particularly sensitive one in the aftermath of the recession, which has left many unemployed workers with tarnished credit and attracted the attention of the Equal Employment Opportunity Commission.
Opponents of employer credit checks cite studies showing that minorities such as African-Americans and Latinos tend to have lower credit scores. They also dispute whether credit reports are an accurate way to measure an employee's qualifications, with experts pointing to studies that bad credit is actually a poor predictor of job performance. A recent Society for Human Resource Management study showed 60 percent of employers used credit checks to vet job candidates. Of those, 13 percent used them for all candidates, taking individual circumstances into account and looking for a pattern of careless financial behavior, not one-time events.
Proponents of credit checks point to them as a tool to protect businesses against fraud. Every year, fraud costs businesses about 5 percent of their revenue and in the U.S., the median loss was $105,000 in each incident. One problem in evaluating credit checks is confusion over what information is included in credit reports, how employers use them and what research has been conducted on the effects of using the checks in employment. Some companies offer an employment report that includes details such as a credit history, evidence of bankruptcy or liens, and information on previous employers. It doesn't include a credit score—which takes into account various details of a person's credit history and synthesizes them into one number.
From The Wall Street Journal
View Full Article
No entries found