6 Reasons Why Proposed Ban on Employment Credit Reports Will Fail

Nick Fishman

Massachusetts senator Elizabeth Warren has introduced a bill that will effectively bar employers from conducting credit checks on potential job candidates as part of the employment background screening process.  The proposed “Equal Opportunity for All” Act would make credit checks illegal in many cases except in specific areas such as national security.

Now let me be the first to say that this bill doesn’t stand a snowball’s chance in H-E-Double-Hockey-Sticks and I thought it would be good to highlight 6 ideas as to why.

1.  It is a widely misheld perception that employers conduct credit reports on job candidates indiscriminately.  We’ve documented time and time again a SHRM study which indicated that 60% of surveyed employers conduct credit checks on their job candidates.  However, it is important to point out the 47% of employers indicated that they only run them on select employees and only 13% indicated they do so on all employees.  These stats go a long way towards proving the employers are using these checks responsibly.  Namely, they are either complying with regulations that demand that a credit report be consulted or they are using them for positions where the information found on a credit report will have a direct relationship to the job responsibilities.

2. Rarely does adverse credit information prevent a candidate from being hired. That same SHRM study found that 80% candidates with negative credit information are hired in spite of that information.

3. There are a number of federal and state regulations that mandate employers conduct credit checks for certain industries: insurance, financial services, mortgage, banking, etc.  These regulations exist for good reason.  They protect these businesses as well as the customers they serve.  Remove the mandate and you expose innocent people to potential catastrophic loss.  Who’s going to be responsible for that? Senator Warren?

4. Individual states are doing a much better job of policing this issue on their own.  There are currently 10 states (Illinois, Washington, Colorado, California, Oregon, Maryland, Nevada, Hawaii, Vermont and Connecticut) that have enacted laws that curb the use of credit reports.  In each case, there are reasonable exemptions for industries and job responsibilities where consulting a credit report is a responsible practice.

5. The Association of Certified Fraud Examiners estimates there are about $1 trillion worth of employee thefts annually, which totals on average more than $175,000 per business. The figure rises to $200,000 for organizations with 100 employees or less.  My good friend Norm Magnuson from Consumer Data Industry Association (CDIA) is quoted as saying “”The top two red-flag warnings present in these crimes were instances where the fraudster was living beyond his or her financial means or experiencing financial difficulties. That’s important because employee fraud and theft can very well determine whether a small business survives or not.”

6. Tennessee Congressman Steve Cohen has been trying to push this bill through congress for years with no success.  Perhaps his fellow legislators recognize that an all-out federal ban is an irresponsible reaction to a sound business exercise in risk management.

As I’ve said before and will continue to repeat, I am not a huge advocate of credit reports.  However, there are instances where that information should be consulted before a hiring decision is made.  SHRM’s Mike Aitken put it best when he said, “Credit reports are one tool used in the hiring process but often not the deciding one. “

Here’s some advice for employers who consider credit reports a necessary component of their employment background check:

  • Are you in an industry that mandates the use of credit reports as a part of hiring criteria?
  • Do the job responsibilities justify the evaluation of a credit report (managerial responsibility, access to financial records or larger sums of money, company executive, etc.)
  • Does your state have a law that bans the use of credit checks? If so, do you qualify for one of the exemptions?
  • Take the time to evaluate what adverse information would be concerning and make sure that hiring decisions are made by taking into account all of the information you have about the candidate

 

Nick Fishman
Follow Me

Nick Fishman

Nick Fishman is the co-founder of EmployeeScreenIQ, a leading, global employment background screening provider, and serves as the company’s executive vice president and chief marketing officer. He pioneered the creation of EmployeeScreen University, the #1 educational resource on employment background checks for human resources, security and risk management professionals. A recognized industry expert, Nick is a frequent author, presenter and contributor to the news media. Nick is also a licensed private investigator in the states of Ohio and Texas.
Nick Fishman
Follow Me
Tweet
Share
Email
Share