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Lawmakers Ban Most Employer Credit Checks

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Backers say reports often are inaccurate and hurt minority and female job seekers

By Chris Levister –

Imagine being unemployed for nine months and finally a job offer comes your way. Great you’re ready to pop the champagne cork. But wait not so fast. First you have to pass a background check. That could mean pulling your credit score. What if it’s not great? Will that affect your chances of getting the final nod?

We all know that our personal credit history affects our ability to secure a home loan or open an account at a department store. But most Americans are unaware that bad credit could cost them a job. Now, Congress and states are stepping up with new protections.

California lawmakers have voted to block employers from using consumer credit reports when they are deciding whether to hire workers for most jobs. May 19, the state Assembly passed AB22 with the bare majority needed, sending it to the Senate.

If signed into law, the bill would stop the use of credit checks in hiring, except for managers, law enforcement, financial jobs and certain other positions that handle valuable items or information.

The bill's author, Democratic Assemblyman Tony Mendoza of Artesia, says credit checks often are inaccurate and hurt minority and female job seekers. Opponents say they are a useful tool for employers assessing the integrity of job candidates.

The measure passed on a party line vote of 42-28. No Republicans voted in favor. Similar bills were approved the past three years but were vetoed by former Gov. Arnold Schwarzenegger.

“A credit report is not a good indicator of a person’s trustworthiness or work ethic,” says Mendoza.

“Consider the condition of the economy and the negative effect these circumstances can have on a person’s credit — a credit report is an unfair lens through which to view job applicants,” he says. “Preventing someone from becoming gainfully employed due to a poor credit history is shameful,” says Mendoza.

“The practice is just so unfair.” That’s Jesse Lewis Spindle. Spindle, an African American, edits copy for a national book publisher from his Riverside home. That was until he was laid off in mid 2010.

“The company moved most of its editing jobs to India.” One day my wife and I were building a baby nursery for our first child, the next day we were fighting to keep our home,” said Spindle.

Without his income, Spindle and his wife Eugenia, a nurse, fell behind on their bills. Spindle’s credit score plummeted from 780 a year ago to below 650 in February.

Now he is discovering that his bad credit is costing him the job he wants.

“I survived three interviews then the company ran a credit check,” he said. “The way they judged me as some kind of financial risk was so unfair,” said Spindle.

Like Spindle, plenty of people don't think that's fair, millions of Americans who lost their jobs to the recession and fell behind in payments to creditors are being penalized again says Spindle.

Damaged ratings are often the result of irresponsibility. They can also be due to bad luck and hard times, including a layoff, divorce or catastrophic illness, which is a leading cause of bankruptcy in the United States.

According to the Society for Human Resource Management, about 60 percent of employers now do credit checks on job applicants — up from less than 20 percent in the mid-1990s.

But even some in the credit industry acknowledge that a poor rating doesn’t necessarily make someone a bad job prospect. Last year, Eric Rosenberg, director of state government relations for TransUnion, one of the country’s largest reporting companies, said:

“At this point we don’t have any research to show any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud.”

Congress is also stepping in to reign in the practice.

H.R.3149 - Equal Employment for All Act would prohibit the use of credit information in most employment decisions.

Five states including, Hawaii, Illinois and Maryland have limited the use of credit histories by potential employers and about 20 including California are calling for similar measures.

The federal measure is supported by more than 25 civil rights organizations, including the NAACP and National Organization for Women.

Meanwhile more than 25 powerful trade associations, representating millions of employers including the California Chamber of Commerce, California Grocers Association and California Hospital Assn. (CHA), have urged Congress to oppose H.R.3149.

“Employers use credit checks as part of a background check very responsibly, and prohibiting their use in assessing employees makes employers, other employees and customers more vulnerable to fraud and identity theft,” the organizations wrote in a statement to federal lawmakers.

Some 80 percent of Americans, according to a Visa survey, don't realize that credit history can and is being used in pre-employment screening.

“Most of the time, you're signing a consent and disclosure clause that grants your permission to the employer and its designated third party vendor(s) to conduct a background check and credit check,” said Assemblyman Mendoza. “Be aware of what exactly you're agreeing to upfront.”

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