The House Committee on Financial Services took a big step towards prohibiting employers from using credit reports as part of the employment background check, unless required by law or for a national security clearance. On July 11th the house passed legislation that would do just that, the bill will also mirror ban the box laws which would prohibit hiring professionals from inquiring about applicants past financial history.

Supporters of the bill claim that credit reports blocks upward mobility for employees wanting to advance to higher level positions, and disproportionately affects a certain class of minority job seekers. Opponents of the bill argue that credit reports is a good indicator for a person’s judgment and potential risk to the business, especially for sensitive positions with accounting and financial responsibilities.

The legislation is a part of a multi-bill restructuring of the credit-reporting industry brought forward by Rep. Maxine Waters (D-California, committee chair). She said that the concern with credit reports is that adversely it does have an effect on qualified applicants due to inaccurate reporting or due to a financial hardship:

“In addition, “an individual’s credit history has been shown not to predict their job performance,” she said. “Nevertheless, credit information is increasingly used by employers. People who have been unemployed for an extended period of time, and whose credit standing has been damaged because they were unable to pay their bills, cannot secure a new job to end their financial distress because prospective employers conduct credit checks as part of an application process.”

I see the argument how credit reports like criminal records can have a negative impact on job applicants in general, however if done on a “position specific” basis and in a consistent manner I do see the value in conducting credit reports for employment purposes. The Society of Human Resources (SHRM) is against this bill due to the overreach it has “SHRM believes employers must have the ability to enact policies and procedures that best meet the needs of their individual organizations”.

Currently, there are ten states (California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington) along with the District of Columbia and the cities of Chicago, New York City and Philadelphia that have placed restrictions on employers utilizing credit reports as part of the background screening report. There are exceptions to these laws which range from positons requiring handling confidential information to financial positons having access to a certain dollar amount.

In our business we have seen a steady decrease in our clients requesting credit reports, obviously in certain industries there is still a need (financial and federal regulators), as an alternative we offer county civil records search which will reveal judgments and bankruptcies with increased accuracy than the credit report.