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Senate Bill Would Prohibit Credit-History Disclosure
Proposed legislation would bar employers from conducting credit checks

By Bill Leonard  1/1/2014
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Debate over how employers should use credit checks in the hiring process was reignited on Dec. 17, 2013, when Sen. Elizabeth Warren, D-Mass., introduced legislation that would prohibit employers from asking job applicants to disclose their credit history.

“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 an individual's character or abilities,” Warren said in a written statement. “This is about basic fairness; let people compete on the merits, not on whether they already have enough money to pay all their bills.”

The legislation is similar to a measure (H.R. 645) that Rep. Steve Cohen, D-Tenn., introduced in the House in February. If enacted, the bill would amend the Fair Credit Reporting Act to stop employers from requiring or suggesting that applicants disclose their credit history and from obtaining a consumer or investigative report of job candidates. In addition, the measure would bar companies from disqualifying applicants based on a poor credit rating or any other information on their creditworthiness.

Warren claimed the bill is needed to enable all workers to compete on an equal footing in the rocky U.S. job market. She told reporters during a media briefing that because of the recession and the ensuing weak economy, many people in the U.S. had blots on their credit histories through no fault of their own.

The legislation has strong support among Democrats, with more than a half-dozen co-sponsors in the Senate and more than 30 co-sponsors in the House. The proposal, however, has gathered no support from Republicans.

Several employer and business groups have criticized the legislation, claiming it would handcuff employers and eliminate a useful tool for conducting thorough background checks. Companies typically use credit reports to determine if candidates applying for jobs with accounting or budgetary responsibilities can manage their personal finances.

“A credit check can serve an important function in certain jobs, especially in the financial services industry,” said Elizabeth Milito, senior executive counsel at the National Federation of Independent Business, in an interview with The Washington Post. “A blanket prohibition would disadvantage many businesses that use credit as one component of a background check.”

A ban on credit checks could also make employers more vulnerable to claims of negligent hiring, according to sources familiar with the issue.

Credit reports are one tool used in the hiring process but often not the deciding one, according to Mike Aitken, vice president of government affairs at the Society for Human Resource Management. “[These] are an important piece in the hiring process, as the consequences of making a poor hire are significant, with potential financial losses—from financial mismanagement or theft—or legal liability to customers, shareholders or other employees; [they] should not be banned outright.”

Sources agree that the proposed legislation faces serious hurdles in Congress, where Republican leaders in both chambers have indicated strong opposition to its passage.

Bill Leonard is a senior writer for SHRM.

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