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New Bill Prohibits Pre-Employment Credit Checks

Man reviewing documents
A newly proposed bill would stop pre-employment credit checks on non-security related jobs.

Last week, Senator Elizabeth Warren (D-Mass.) announced The Equal Employment for All Act, which would amend the Fair Credit Reporting Act and thereby stop employers from requiring an applicant’s credit history. The proposed bill would also prohibit employers from disqualifying employees based on a poor credit rating or other information dealing with the applicant’s creditworthiness. The only employment exemption is with positions that require national security clearance.

Keith Newcomb, portfolio manager for Full Life Financial, said the bill would strike a blow for fairness in employment practices and would have an “overwhelmingly positive” impact on applicants.

But he said that certain sectors, especially financial and security organizations that demand high personal trust and accountability will put up serious resistance to the bill since they’ll effectively be prohibited from detecting issues of character that may later adversely affect their organizations.

Bennie Waller, a professor of finance and real estate at Longwood University, also believes that certain professions should keep the rigid standards. He said that credit reports are a very good measure of risk.

Waller said that if he hired in the financial sector, he would want to employ the best person for the opening. If two applicants are equal on paper, but one has a credit score of 500 and the other has a credit score of 750, the higher credit score likely alludes to a better financial responsibility.

Even though Waller would prefer a higher credit score, he admitted that many uncontrollable items or situations can negatively impact a consumer’s history such as a rocky divorce.

“We’ve all made mistakes in our personal lives,” he said. “We would like to keep it in our personal lives and not go into our professional lives.”

If an applicant has a lower credit score, Waller said it is important to be open about it to the hiring manager and explain the situation. In his opinion, one or two mistakes is not enough to tarnish a “good” work history.

The potential power of Warren’s bill could have a tangible impact on the nation’s citizens, such as James August, a 25-year-old resident of Cleveland, Ohio, who has been job searching unsuccessfully for the past year.

August says that he was required to submit his credit information for the majority of his employment applications. Although he has not been specifically told that his credit prevented employment, he doesn’t believe it played a substantial part.

Despite graduating college, August has been unable to find full-time employment or a job that pays more than minimum wage. He soon found himself unable to repay his student loans on time and defaulted.

Student loan debt is the main item on August’s credit report due to him having no other forms of credit. His low score and his inability to repay his debts has trapped him in a vicious cycle.

“The more my credit score drops, the less likely I’ll be able to get a job,” he said. And without a job, he has little chance of repaying his college loans and fixing his credit.

Although he is personally impacted by hiring managers pulling applicants’ credit scores, August is able to see why it such reports are used so frequently. Employers look for qualitative aspects such as how applicants work with others, their ability to work in fast-paced environments and their levels of expertise. When a resume is not enough, a credit history details another side of an applicant.

But the one-sided nature of credit reports can hide the actual cause of debt or financial woes. As Waller detailed, low credit scores can be caused by unexpected events and not just because of poor financial decisions.

Senator Warren stated that the bill was created partly due to research which shows that an individual’s credit rating has little to no correlation of his or her workplace success.

“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 any individual’s character or abilities,” Senator Warren said in a statement.

Warren worries that many consumers are still recovering from the 2008 financial crisis and searching for a stable job is part of this process.

“This is about basic fairness — let people compete on the merits, not on whether they already have enough money to pay all their bills,” she said.

When applicants are judged on something so ever-present as a credit score, discrimination can occur easily. August said that some applicants ruin their employment chances without lifting a finger.

“For our capitalistic society, financial well-being plays such a large role of determining our personal lives and placement in society,” he said. “It’s the categorizing of people in such a way that removes the human aspect of that person — that makes the practice discriminatory.”

August believes that efforts such as Warren’s bill could reduce the likelihood of employer discrimination. The damage caused by the Great Recession could reduce further and create more workplace equality, a place where employees are not judged by their personal loan debt but rather by their willingness to work.

“Perhaps the employers can begin to look beyond what numbers are equated with people and care more about who they are and what they have done,” he said.