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Ohio State Representative Alicia Reece, D-Cincinnatti has proposed a bill that would prohibits an employer from taking  adverse employment actions  based upon a consumer report or investigative consumer report if the report contains information concerning the person’s consumer creditworthiness, credit standing, or credit capacity.

And unlike similar recently adopted laws in Illinois and Maryland that are laden with exemptions, House Bill 131 exempts from the bill’s prohibition only if the position of employment is a supervisory, managerial, professional, or executive position at a financial institution.

When asked why the law was necessary, Representative Reece said, “House Bill 131 is needed because nearly 65 percent of employers now use credit checks during the hiring process.”

I respectfully suggest that the congresswoman revisit that statistic as she is most likely reacting to last year’s SHRM study which did indeed point out that 65% of all employers consider credit reports.  However, the same study found that only 13% evaluated credit on all employees.  And it is generally assumed that most of that 13% were either required to do so by state of national regulation.  She also might check out our most recent background screening market trends survey which pointed at that nearly 85% of respondents ranked credit reports as either not very or the least important factor in their hiring decision.

If passed, Ohio would join Hawaii, Illinois, Maryland, Washington and Oregon as the only states with prohibitions on employment credit reports.  As always, we would encourage employers that conduct background checks in Ohio to voice their concerns with their elected representatives.

We’ll keep a close eye on this proposed law and report back when we know more.

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I’ve been thinking about all of the legislation (both enacted and proposed) and hearings designed to blunt the efficacy of background checks lately.  Issues such as the “proper” use of criminal records, credit reports and efforts to “ban the box”.  And my pervasive thought is that this legislation is both hypocritical and championed by populist sentiment. These laws consistently rely on a small minority of abuses and anecdotal evidence.

Do we really think for a second that our politicians, whether Nancy Pelosi or John Boehner, don’t perform thorough background checks on their employees?  And do we think that those background checks might be even more stringent than what the average employer would require?  The same can be said of the EEOC.  Now, they would counter by saying that they have a need to know this information about their employees before making an informed decision.  And I would wholeheartedly agree with them.  Does anyone question what they can and can’t use and what is fair game and what is not?  Trust me, the biggest abusers of onerous and burdensome background checks is our federal government. Private sector practices pale in comparison.  Lastly, why are the same people who are calling for curbs on background checks the same people that are regularly calling for mandatory background checks when things go wrong?  You can’t have it both ways.

Recent laws designed to curb the use of credit histories for employment screening purposes in Illinois and Maryland seem to emphasize my point about the populist sentiment.  Have you seen how many exemptions they include?  How many employers that aren’t in these exempted categories were running credit reports in the first place?  These laws appear to cow to public pressure without really changing things at all.  These exemptions weren’t included by accident.

So before designing laws that the government is not prepared to follow through on for themselves, it would be great to address some real solutions to these problems.   Why do 65 million people in this country have criminal records?  What programs can we develop that make it easier for employers to hire those that have truly been rehabilitated?

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Be still my heart.  For the second time in the last month, a member of the media has written a fair and balanced article on how employers use credit reports as part of the background screening process (see post on CNBC article).  This time, Erica Sandberg of the San Francisco chronicle writes about six misconceptions critics have about how they are used. Her timing is perfect as we reported earlier today that Maryland has joined Hawaii, Oregon, Illinois and Washington in enacting laws that severely restrict the use of credit reports.

I’ve included my four favorites here as well as my quick responses to these myths.  Of course, Erica did a much better job of explaining them and providing a better picture of what is really going on.  I strongly encourage you to read the full article.

• Most Employers Pull All Applicant’s Reports- Not true.  See SHRM study which reveals that only 13% of employers indicated they run credit on all applicants.
• Employers and Lenders Look for the Same Information- Not true.  Employers are not privy to a credit score or account numbers.
• Poor Credit Will Immediately Disqualify You- Not true.  If employers only hired people with good credit, they’d hardly be able to hire anyone
• Employers Use Credit Checks to Discriminate- Really? Does anyone actually believe this?  While Erica provides a better explanation than this, I refuse to dignify this notion with a response.

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And it’s official.  The state of Maryland has joined Hawaii, Washington, Illinois and Oregon by curbing employers use of employment credit reports.  Maryland Governor Martin O’Malley signed into law the Maryland Job Applicant Fairness Act on April 12, 2011 which prohibits employers’ use of credit reports in determining suitability for employment. However, there are exceptions for financial institutions as well as those who are regulated or required to do so by state and, or federal law.

According to labor and employment attorney, Pam Devata of Seyfarth Shaw, “The Act also provides limited exceptions that allow employers to request or use credit information where such information is related to a ‘bona fide purpose that is substantially job-related.’  The bona fide purpose exception generally applies to those positions involving money-handling or other confidential job duties.  For instance, employers may request or use credit information for employees in managerial positions that control or direct part of the business, employees who are provided expense accounts or corporate credit cards, and employees who have access to confidential business information. Notably, where an employer chooses to request or use credit information for a bona fide purpose, it must disclose its intent to do so in writing to the employee or applicant.”

Violators of the law are subject to fines of up to $500 for an initial violation and up to $2,500 for repeat violations.

The law is set to take effect on October 1, 2011. Employers are encouraged to revisit their background screening guidelines to ensure they are in compliance.

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Thank you CNBC.

Let’s face it.  Employment credit reports have been attacked on all sides for quite some time now; from the media to our legislators to the EEOC.  Many have misperceptions about how and when they are used as well as the information being reported. For instance, it is a falsely held assumption that employers have access to a credit score.  And, many have drawn their own false conclusions about a SHRM study that showed that 60% of employers include a credit check in the background screening process.   In fact, lost in that statistic is the fact that the study showed that while 60% of employers utilize credit reports, only 13% did so on all candidates.

With all of this negative and often misinformed or misleading information, it has been hard to find any media stories which properly portray the intended use and benefits of this product.   So imagine my surprise when I saw such an article on CNBC, “Can Bad Credit Still Cost You a Job?”

Kudos to reporter Cindy Perman for presenting a balanced argument with real facts.  I’ve included a few telling statements from the article below, but encourage you to read it in its entirety.  Hopefully, those that have been railing against the use of the important employment screening tool will take note.

How Much a Credit Report Weighs in the Hiring Decision

“I’ve always de-emphasized the credit report,” said Greg George, who does a lot of background checks and due diligence with his firm GTI Advisors. “People face various challenges in life from business failures and layoffs to medical bankruptcy and other issues that may cause/reflect financial distress. This does not mean that they are bad people or necessarily a risk.”

When A Credit Check is Used and What Information is Sought

Chris DesBarres, who owns Help Unlimited, a company that helps individuals, mostly senior citizens, manager their day-to-day finances, said he uses credit checks when making hiring decisions – but only after he’s decided he wants to hire someone.

When he does use credit checks, DesBarres said, he’s looking for four key things: The amount of debt the person is holding, any bankruptcies, recent red flags such as maxing out credit cards and any debts that are now in collection.

How Does the Recent State of Our Economy Factor

Jay Meschke, president of executive-search firm EFL Associates, said his clients have started to loosen their standards when it comes to credit checks — but not for everyone.

“Since the downturn in the economy and since people have been losing their jobs and being unemployed for long periods of time, hiring managers have lessened their historical standards vis a vis what the credit report might tell about a candidate,” he said, also citing Detroit as an example.

Read Full Article

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This morning Pamela Devata of Seyfarth Shaw discussed employment credit reports in response to a new Maryland Bill being introduced.  The bill would limit the use of employment credit reports to those employers who are required to receive it.  Pam does a great job clearing up many of the misconceptions the public has on how these reports are used.  Specifically she points out that employment credit reports are only one facet of the entire background check.  Enjoy!

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The state of Colorado is now mulling House Bill 11-1127 which would create certain restrictions on an employer’s ability to evaluate a job candidate’s/employee’s credit report as part of the background screening process (the bill also addresses requirements for insurance companies and landlords).  The bill proposes the following.

An employer cannot use a consumer credit report unless:

1. The information is substantially job-related, meaning that the position of the person for whom the information is sought has access to money, other assets, or trade secrets or other confidential information.[Insert Nick's snarky comment here: How many employers out there conduct credit reports for any other reason?  Can someone define "other confidential information".  That could relate to anything.]
2. The person of the person for whom the report is sought is a managerial position, a position in the department of law, a sworn peace officer of other law enforcement or a position for which the information is required to be disclosed by law or to be obtained by the employer. [Insert another snarky comment: Haven't they now granted enough exemptions so that the law is unnecessary]

My smart-Alec comments aside, there is other language in here that I believe renders the entire bill useless (and I’m not complaining).  They define “Consumer Credit Information” as something that includes a credit score.

Hello people! If an employer conducts a credit report, they are provided with an “Employment Credit Report”.  An employment credit report doesn’t include a credit score.

So having dissected this bill, do we care if it passes?  It would appear that it has next to no impact on the state’s employers.

If this bill is passed, it will take effect on July 1, 2011.  Stay tuned.

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Maryland State Delegate Kirill Reznik has introduced House Bill 87 that would prohibit Maryland employers from using a person’s credit report as a background screening tool for hiring and retention decisions.  The bill includes exemptions for financial institutions, banks, credit unions and law enforcement.

This is the second time Reznik has introduced this bill as last year’s attempt was unsuccessful.

“We’re not trying to target the CFOs or the folks involved in dealing with companies’ millions of dollars,” Reznik said. “We mean nurses, school teachers, janitors, plumbers … blue-collar workers having trouble making ends meet, so that they don’t have one more hurdle to overcome.”

If Maryland were to enact this law, they would join the states of Illinois, Hawaii, Oregon and Washington who have similar laws in place.

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As many of you know EmployeeScreenIQ held a webinar this past Tuesday led by Seyfarth Shaw attorney, Pam Devata, entitled, “Credit Reports, Criminal History and the EEOC’S E-RACE Initiative.”

For those of you that missed the presentation, we invite you to access a copy of the slides and the recorded webcast  at www.employeescreen.com/eeoc_missed.asp

If you have any questions regarding Credit Reports, Criminal Background Checks and the EEOC’S E-RACE Initiative please do not hesitate to contact EmployeeScreenIQ at (800) 235-3954 or visit us at www.employeescreen.com

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