Should employers be allowed to use credit reports to screen job applicants? It’s a hot topic that’s gotten a lot of attention in state legislatures across the country.
Now a group of more than 25 civil rights organizations, consumer groups and labor unions are calling for a halt to the practice of selling credit reports for employment purposes.
They are targeting consumer reporting agency TransUnion because, according to Nat Lippert, a research analyst with UniteHere!, “TransUnion has, in a number of states across the country, led the fight against banning or restricting this process,” and “is the only privately held credit reporting agency that could stop this practice immediately without appealing to shareholders.”
According to a letter released last week, the groups have four major concerns about the use of credit reports to screen prospective or current employees:
At the top of the list is the “Credit Catch 22.” You lose your job and fall behind on your bills, then can’t get a job because of your credit history. It’s unfair, says the group.
It’s discriminatory. In particular, the groups are concerned that “the use of credit in hiring has a discriminatory impact against African American and Latino job applicants.” Several studies have shown the credit scores of African Americans and Latinos are, on average, 5 percent to 35 percent lower than that of whites.
Bad credit doesn’t mean you’ll be a bad worker. There has been limited research into the correlation between credit history and job performance.
A study by Dr. Jerry Palmer and Dr. Laura Koppes of Eastern Kentucky University in 2004 found that those with good credit were no more likely to receive positive performance evaluations and were no less likely to be terminated from their jobs.
In a hearing before the Oregon state legislature last year, a TransUnion official admitted there was no research “to show any any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud.”
Finally, the groups say credit reports contain too many mistakes. The FTC is a couple years into a multi-year study of credit report accuracy, while a recent study by the The Policy and Economic Research Council (PERC) found few mistakes.
The number of credit reports that contain mistakes serious enough to cost someone a job opportunity is unknown at this point. But we’re talking jobs here, not credit cards. Applicants may not get a second chance at a job if they find out after the fact that their credit reports contain mistakes.
My Take: Given the considerable financial challenges so many Americans are facing today, why should credit reports prevent those who want to work from getting jobs so they can pay their bills?
We need one consumer reporting agency that understands the seriousness of this “Credit Catch-22? to step forward and publicly agree to place a moratorium on the sale of their credit reports for employment purposes.
Experian took the initiative in providing consumers with one free credit report each year before they were required to do so by law. This issue is just as important, if not more so. Will any of them take the lead?
In the meantime, job seekers and workers who want to urge TransUnion from selling credit reports to employers can sign onto the letter at CreditCatch22.org.
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Gerri Detweiler Credit.com's Personal Finance Expert, Gerri focuses on financial legislation, budgeting, debt recovery and consumer savings information. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis. Reach Gerri at email@example.com.