Facing unemployment in a dismal economy, Vernita Humphries of Randallstown was elated when she landed a job last year. But just days before her start date, the chief financial officer telephoned her personally to rescind the offer.
Her bad credit, stemming in part from a divorce and the cost to care for her mother after a stroke, had come back to haunt her.
“It was like a real bad feeling in the pit of my stomach,” said Humphries, who worked in payroll for 35 years and couldn’t fathom what hadn’t checked out in her background. When the company indicated that her bankruptcy seven years ago prevented the hiring, she said she “was really taken for a loop.”
Employers’ use of credit histories to screen applicants is turning into one more barrier for the nation’s unemployed – about 15 million people – many of whom end up with tarnished credit when they lose a job and struggle to pay bills, credit cards and household expenses. Critics of the practice say it perpetuates a cycle of joblessness and hinders economic recovery.
That has stirred a movement, supported by consumer and worker advocacy groups, to clamp down on credit checks by employers. In Maryland, lawmakers are proposing legislation that would ban credit checks to hire or fire, though it would not apply to financial institutions or businesses required by law to check credit. It has been flagged as a priority by Senate Democrats.
Fifteen other states are considering similar laws, while legislation is pending in Congress that would ban employers from hiring and firing based on creditworthiness. Proponents say credit reports can contain errors and, even when accurate, can be an unfair and discriminatory judge of worker ability.
“Credit reports were meant to determine credit-worthiness, not job-worthiness,” said state Sen. Mike Lenett, a Montgomery County Democrat who sponsored a bill heard last month by the Finance Committee. The senator said he has heard numerous stories of people being offered a job and “at the last minute having the rug pulled out from under them and denied a job on the basis of their credit report.”
Sixty percent of employers surveyed by the Society for Human Resource Management said they conduct credit background checks for job candidates, with most employers running checks only on selected applicants, rather than all. About half the employers in the January survey said they typically review six or seven years of history. The top reasons given by respondents for turning down candidates: outstanding judgments, accounts in debt collection and bankruptcies.
With people unemployed for longer periods than in past economic downturns, “unprecedented numbers of people are seeing their credit suffer because of job loss,” said Melissa Broome, a senior policy advocate with the Job Opportunities Task Force.
“People these days are doing everything they can to scrape by and figure out what bills they’re going to pay,” Broome said. “Just because you have bad credit doesn’t mean you will be a bad worker or an untrustworthy person.”
Employers and business groups, including the Maryland Chamber of Commerce, have come out against efforts to limit credit checks, saying they need to know the financial backgrounds of people working not only in banks and other financial institutions but in stores, restaurants, hospitals and customers’ homes.
Opponents have testified in legislative hearings that such limits would deprive companies of a valuable screening tool. And some argued that employees and applicants are already protected under the federal Fair Credit Reporting Act, which requires an employee’s consent before credit can be checked.
“Employers need some flexibility, particularly for jobs that have to do with cash,” said Allyson Black of the Maryland chamber.
The consequences of failing to make such background checks can be serious and cost businesses money, said Colleen Denston of the Maryland chapter of the Society for Human Resource Management. If faced with serious misconduct by an employee, an employer could be sued for negligent hiring, she said. Some positions, such as janitor, may require credit checks in hospitals where they could access medicine and patient information, but not in some office settings. Employers say they need the flexibility to decide when to check credit.