Personal finance

Debtor’s Prison: Barriers to Employment

A plague of debt infected the unemployed and underemployed during the Great Recession. Yet, some of these needy yet trustworthy workers were denied job opportunities because of their ”bad credit.” 

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Many employers review credit during the hiring process, but civil rights groups cry foul because of a concern that some groups of job-seekers experience discrimination. Meanwhile, employment lawyers await and prep for a wave of litigation.

Employers most likely credit-check workers in positions that have access to money, such as tellers, cashiers and finance officers, but more employers have adopted the credit check as a job performance predictor for positions that are not financial or fiduciary. Credit background checks have been used by 60 percent of employers questioned by the Society of Human Resources Management in its 2010 survey, which interviewed 433 randomly selected members.  Forty-seven percent used credit screening for select candidates, and 13 percent used it for all job applicants.

The credit checks are legal. The employer is required to get the job seeker’s permission before proceeding with the review, but the Equal Employment Opportunity Commission stated the practice may violate federal employment discrimination laws. The checks could disproportionately screen out women, minorities and other protected groups. 

“Title VII of the Civil Rights Act of 1964 was intended to eliminate practices that serve as arbitrary barriers to employment because of a job applicant’s race,” said Regional Attorney Debra Lawrence of the EEOC’s Philadelphia District Office in a press release. “Employers need to be mindful that any hiring practice be job-related and not screen out groups of people, even if it does so unintentionally.”

Employment lawyers are currently examining and scrutinizing the EEOC’s lawsuit against Kaplan Higher Education, a provider of post-secondary education, according to Lawyers USA. The agency alleged candidates were denied jobs based on their credit histories, which distinctly affected African-American applicants nationwide.

U.S. Congress members have tried to change the law. Democratic Congressman Steve Cohen of Tennessee authored the Equal Employment for All Act. It banned the use of credit checks in the hiring process, but the bill didn’t pass.  Opponents argued financially distressed federal employees with security clearances are a red flag.  According to a U.S. Government Accountability Office report “Payday Lending: Federal Law Enforcement Uses a Multilayered Approach to Identify Employees in Financial Distress,” some investigators associated with federal agencies, such as the Transportation Security Administration and the Federal Bureau of Investigation, examine credit reports from the three major credit reporting bureaus and weigh the extent, circumstances and severity of risky financial debts. 

 Some states have taken action to alleviate or reduce the review of job-seeker credit histories. So far, Hawaii, Illinois, Oregon and Washington have banned or restrained credit screening of job applicants. The EEOC is examining employers’ treatment of the unemployed in applicant pools.

How important are credit histories for businesses?

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