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Credit Checks

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The House Subcommittee on Financial Institutions and Consumer Credit held a hearing on the “Use of Credit Information Beyond Lending: Issues and Reform Proposals” on Wednesday, May 12.

The subcommittee discussed H.R. 3149, introduced by Rep. Steve Cohen (D-Tenn.), which would amend the Fair Credit Reporting Act (FCRA) to prohibit the use of consumer credit checks for prospective and current employees for the purposes of making adverse employment decisions.

Stuart Pratt, President and CEO of the Consumer Data Industry Association, cited in his prepared testimony SHRM’s recent survey report titled, Conducting Credit Background Checks. In compiling its research, SHRM surveyed 433 randomly-selected HR professionals from the membership on their organizations’ background investigation practices.

A summary of the survey findings include:

  • Only 13% of employers consider credit information for all job applicants.
  • 47% of employers consider credit information for applicants of certain positions (i.e. jobs that involve handling money).
  • If a negative credit incident is found, employers are overwhelmingly (87%) giving the applicant an opportunity to explain the circumstances of the incident, which is more than what the Fair Credit Reporting Act requires.
  • Only specific credit information impacts hiring decisions. Of the few employers that check applicants’ credit reports, 64% said pending debt lawsuits and 49 % said accounts in debt collection are likely to affect their decision to extend a job offer.
  • Even among employers that consider credit reports, almost none of them consider past medical-related debt (1%) and very few consider home foreclosures (11%) when making an employment decision.

SHRM Position:

SHRM is greatly concerned about the breadth of H.R. 3149 and similar bills pending in Congress because they could ban the responsible use of credit checks by all or most employers. A more reasonable approach would be to limit the use of credit checks for jobs with fiduciary, financial and security responsibilities.

SHRM will be monitoring developments in the credit check area on both the federal and state levels, and will update our members accordingly in subsequent issues of the HR Issues Update.


 Next Issue

The next issue of HR Issues Update will be published on Friday, May 28, 2010.
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