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EEOC Holds Hearing on Credit Checks and Employment

The Equal Employment Opportunity Commission (EEOC) held ameeting last week to explore the use of credit checks in preemployment screening programs.

The EEOC is investigating the issue to determine whether credit checks are creating an obstacle to employment in a poor economy, especially for minority applicants. At the hearing,witnesses discussed the usefulness of credit checks in hiring decisions and whether the practice is widespread among employers. Other issues included whether existing law provides sufficient safeguards for employees.

Michael Aamodt, principal consultant with DCI Consulting Group, Inc., in Washington, D.C., testified that not much scientific research has been done to determine whether there is any connection between credit checks and poor performance. “This lack of research is especially important to note because there have only been five studies that investigated actual credit history rather than self-reported levels of financial stress,” Aamodt testified. “When these studies are combined using meta-analysis…financial problems seem to be correlated most highly with absenteeism and least highly with performance ratings.”

Sarah Crawford, with the Lawyers’ Committee for Civil Rights Under Law in Washington, D.C., said that credit checks do not provide the context necessary for employers to make informed decisions. “While credit reports may show whether bills have been paid on time, they do not reflect the circumstances surrounding debts or reasons for any late payments,” noted Crawford. “A credit report would not explain that a man’s credit was destroyed because he was the victim of identity theft.”

Other witnesses argued that companies don’t conduct credit checks as often as the public suspects, meaning that the problem may be one of perception rather than reality. For example, Michael Eastman, executive director of labor law policy for the US. Chamber of Commerce testified that his informal survey of businesses yielded a surprisingly small number of firms that conducted credit checks. “In fact some of the largest employers in the United States told me that, while they reserve the right to look at credit history, they currently do not look at credit history for any of their employees,” noted Eastman.

Eastman went on to say that where companies indicated that they did ask for credit check information in their background screening process, they said that they did not do so for all applicants. “A typical example is a company I spoke with in the insurance services industry. This company employs approximately 5,000 employees in the United States and includes credit history as a component of the background check for approximately 100 of those employees with either direct access to the company’s or its client’s funds,” he explained.

According to Eastman, this company has suffered from embezzlement four times in the past when employees stole client money, so they consider a credit history check an important tool in making hiring decisions for those positions. However, Eastman also noted that the company's executives anticipate “reducing the number of positions for which they examine credit history because of advances in technology that will make it more difficult for employees with access to client funds to embezzle.”

In addressing the issue of how an applicant came to be in debt, Eastman testified that companies do consider context. “It is my experience that employers are much less likely to be concerned with debt that arose as a result of a medical issue, a period of unemployment, or a divorce,” he said. “On the other end of the spectrum, some types of debt might raise red flags more quickly, such as gambling debt.”

Whether they find it is good corporate practice or not, some companies are required to conduct background checks that include credit reports. Christine V. Walters, owner of FiveL Company in Westminster, Maryland, who testified on behalf of the Society for Human Resource Management noted that state and local statutes often require companies to conduct credit checks on employees in certain positions. Licensed healthcare professionals, day care providers, teachers and athletic coaches, and police officers and firefighters are just a few of the positions requiring a credit check, according to Walters.

Industry standards also factor in to screening decisions, Walters noted. She cited the Payment Card Industry’s Data Security Standards, otherwise known as PCI Compliance as an example. Under the standard, companies that process consumer credit card data must conduct credit checks on employees who handle the data directly or have access to computer networks were information is stored.

Maneesha Mithal, associate director for the division of privacy and identity protection for the Federal Trade Commission testified that the federal Fair Credit Reporting Act already places requirements on employers who use credit history in making hiring decisions. And existing EEOC guidelines caution employers to examine hiring practices to avoid a disparate impact on minority applicants.

The EEOC plans to hold more hearings on the issue before taking any action. In her testimony, Crawford urged the EEOC to issue guidance. While some issues have been addressed in other documents, such as the EEOC’s Guide to Pre-Employment Inquiries, comprehensive guidance for the use of credit history in preemployment screening is necessary.

Congress has also been looking at the issue. Before they adjourned earlier this month, lawmakers considered legislation (H.R. 3149) that would have limited the use of credit checks in employment decisions. Hearings were held on the issue but the measure failed to progress out of committee, and further action is unlikely even if Congress returns after the election.