The New York Times had an interesting article on Friday discussing a recent trend in state legislatures to prevent the use of credit reports as a tool for private businesses to screen job applicants. According to the article, more than a dozen state legislatures are currently considering such legislation.
With the downturn in the economy, the continually rising cost of health care (and the lack of insurance because of unexpected unemployment) and the failure of recently unemployed to change their spending habits, the issue of poor credit has affected more and more individuals.
To fight this potential trend to prohibit the use of credit reports in the hiring process, credit reporting agencies such as TransUnion (you know, one of the companies that sells the credit reports to those private businesses) has lobbied to block such legislation. A tactic has been to sell the credit report as a mechanism to protect your business and employees. Don’t you care enough to protect your employees, you monster? This approach is why there are parents paying $800 for a baby stroller. Apparently, these efforts have been successful in some states, such as California, Maryland and Connecticut.
But what does a tainted credit report really tell you about the applicant? The article does a keen job of pointing out that there have been no comprehensive studies on the correlations between poor credit and employee fraud and theft, but a small study cited found no such correlation.
If your business does credit checks as part of a background check on a potential employee, I suggest you read the article and consider a few questions. First, do you get written permission to obtain the credit report? (You need that written permission under federal law.) Second, does your human resources staff understand that it cannot make employment decisions based solely on the credit report? (You should not do that.) Finally, do you really need the report, meaning does it really tell you anything and, if it does, do you limit your practice of obtaining the report to positions that involve the handling of money or positions that come with other fiduciary responsibilities?