Elizabeth Warren proposes federal ban on credit checks for job applicants

Elizabeth Warren argues that a person's poor credit history does not reflect job performance, moves to ban employers from using credit checks in hiring process. Photo: Elizabeth Warren / Associated Press

DALLAS, December 17, 2013 - Sen. Elizabeth Warren (D-Mass.) introduced legislation that prevents companies from considering a candidate’s credit history during the hiring process. Warren believes the screening process establishes unnecessary roadblocks for the poor seeking lucrative employment.

“This is about basic fairness — let people compete on the merits, not on whether they already have enough money to pay all their bills,” Warren said. “A bad credit rating is far more often the result of unexpected medical costs, unemployment, economic downturns, or other bad breaks than it is a reflection on an individual’s character or abilities.”

Warren and Senate Democrats assert that studies indicate a poor credit history does not reflect on an individual’s ability to perform a job well done. Currently, Americans with negative credit reports, especially after the 2008 financial crises, face unjust discrimination due to employer credit analysis.

The Equal Employment for All Act would alter the Fair Credit Reporting Act by prohibiting employers from considering a candidate’s financial history. Only the federal government or its contracting agencies could consider an individual’s credit rating when hiring for positions requiring national security clearance.

FICO, a leading provider of credit scores, reports that Americans’ average credit scores continue to sink despite spending and debt reduction. Roughly 35% of consumers, or 70 million Americans, have credit scores below 650, which is subprime. The workforce remains at a 35-year low. This move could help those caught with low scores, but qualified resumes.

For this reason, the proposed ban is gathering bi-partisan support among Americans that agree good candidates are facing discrimination of sorts.

“A good friend of mine has real trouble finding steady white-collar work solely because of his credit report. He’s got experience and references galore, but he made a few financial mistakes right out of school, and they’ve haunted him ever since. Since companies don’t hire him based on that credit report, he ends up in more financial trouble, which leads to more bad credit reports, and so on,” said Ryan Graff, an author and political commentator.

Banks and credit agencies can make serious mistakes too. Taking this out of the hiring equation helps qualified workers get the jobs they’re best suited for, regardless of irrelevant past mistakes. That’s a good thing.”

While the ban could level the playing field and protect a candidate’s privacy, what impact could this move have on employers? Should employers and employees willing to voluntarily exchange credit information through the hiring process be prohibited by a federal ban?

“Why ban this practice instead of incentivize employers to hire those with poor credit ratings? If I could accept a tax break to hire someone with a poor credit score, I would in a heartbeat,” said Steven, an entreprenuer and small-business owner in Dallas. “I don’t use this tool anymore because everyone has poor credit. So is this really the epidemic requiring federal action?”

Since the financial crisis of 2008, the percentage of employers using credit background checks dropped below half. Only 14% cited a credit check as the most important factor in a hiring decision, compared to 87% who said previous work experience, organizational fit and skills were the three most important factors. 80% hired someone despite a poor credit report.

Those that do conduct reports do so to protect their business. According to a 2012 survey by the Society for Human Resources, most employers screen with credit checks to prevent theft and embezzlement. Legal repercussions for negligent hiring and due diligence failures can be costly and removing screening tools places companies at risk. Currently, employers do not evaluate credit scores, but the subjective information in the report, such as debts, payment consistency, liabilities, default history and bankruptcy.

The bill has been endorsed by 50 advocacy groups, ranging from labor unions to women’s rights and minority-advocacy organizations. With heavy-hitters such as Patrick Leahy (D-Vt.), Sens. Richard Blumenthal (D-Conn.), Sherrod Brown (D-Ohio), Jeanne Shaheen (D-N.H.) Sheldon Whitehouse (D-R.I.) and Ed Markey (D-Mass.), the bill could become law.

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Tiffany Madison

Tiffany is a writer and veteran's advocate. Her column focuses on civil liberties, veteran's issues and current events. You can follow her on Twitter @tiffanymadisonFacebook or her website.

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