By Pamela Devata, Paul Kehoe & Alnisa Bell
On December 17, 2013, Elizabeth Warren (D-Mass.), along with six other senators, introduced a bill, otherwise known as the Equal Employment for All Act, that would amend the Fair Credit Reporting Act (the “FCRA”) to prohibit employers from using or obtaining consumer reports for prospective and current employees containing any information bearing on the employee’s or applicant’s creditworthiness, credit standing or credit capacity for employment purposes. Currently, FCRA specifically authorizes employers to do so. The proposed prohibitions would apply even if the consumer consents or otherwise authorizes the employer to perform the credit check.
Notwithstanding, Sen. Warren’s bill contains two exceptions. An employer would be able to use or obtain a credit-related consumer report for positions that require a national security clearance or when otherwise required by law. Similar legislation was introduced on July 9, 2009 and re-introduced on January 19, 2011, but was never enacted into law. Overall, the new legislation would prohibit an employer from running a credit-related background check for its Chief Financial Officer position, for companies that provide financial advice to clients, or for companies whose employees have access to sensitive personal data, including medical data and social security numbers.
The bill’s sponsors contend that credit reports disproportionately affect: (1) people of color in the hiring process; (2) women, who are often financially affected by fallout from divorce and who are more likely to receive subprime mortgage loans than men; and (3) those affected by the foreclosure crisis. The sponsors claim that a foreclosure can push a credit score down by 250 points and remain on a credit report for seven years. Accordingly, the sponsors maintain that the bill’s passage is necessary as there is no evidence to suggest a link between an individual’s credit score and his/her work ability. Further, they claim that credit reports can contain errors as evidenced by the Federal Trade Commission’s study which found that one in five credit reports contain errors. Moreover, they contend that credit checks can exacerbate a family’s financial circumstances by precluding individuals from otherwise gainful employment.
However, as conceded by the Equal Employment Opportunity Commission’s own Chief Psychologist, Dr. Richard Tenowski, at the EEOC’s October 2010 public meeting, there is a lack of information regarding whether using credit background checks has any disparate impact on employees or applicants. Indeed, the EEOC itself maintains a policy requiring certain employees to be subjected to credit (and criminal) background investigations, hardly positions where national security is at issue.
If you listen to the vociferous voices of the bill’s supporters, one would think that credit checks are performed widely and used for nefarious purposes as a means to screen job applicants. Far from the truth, a 2012 report by the Society of Human Resource Management (“SHRM”) actually shows that 53% of employers do not conduct credit checks on prospective candidates, which represents a sharp decrease over the years: in 2010, 40% of employers did not perform credit checks, and in 2004, 39% of employers did not. 34% of employers maintain that they perform credit checks on select job applicants, while only 13% conduct credit checks on all job applicants. Based on the SHRM report, credit checks are not widely conducted. And when those 34% of employers conduct credit checks, the majority (87%) do so on individuals applying for positions with financial responsibilities; 42% on candidates applying for senior executive positions; and 34% on candidates applying for positions involving highly sensitive employee information. Undoubtedly, these are not the types of individuals for which the bill’s sponsors likely envisioned needing protection, but they are the ones, according to the SHRM report, most subject to credit checks.
Not surprisingly, The SHRM report also noted that 80% of companies claim they have hired a job applicant whose credit report contained negative information, which SHRM concluded “suggest[s] that negative credit information is not often a barrier to hiring.” Most employers still identify an employee’s prior work experience, fit for the job, and performance during the interview as more important factors than a favorable credit report.
More importantly, the bill’s sponsors seem to muddle the distinction between a credit report and a credit score. Credit reports contain such information as an individual’s address(es), employment history, and debt history. A credit score, however, ranges from 300 to 850, and is provided by the three major credit bureaus. However, as established by Seyfarth Shaw during the EEOC’s October 2010 meeting, when an employer uses or obtains a credit-related consumer report, credit scores are not provided to the employer. Additionally, credit reports contain useful information for employers and, according to SHRM, are used by most employers to prevent theft/embezzlement and to reduce liability for negligent hiring suits.
We will continue to monitor the progress of this bill. While it is too early to predict the likelihood of passage, there are clear indicators that support for this bill is growing. More than 50 advocacy groups, including the NAACP and the Leadership Conference on Civil and Human Rights, are supporting this bill. Being mindful, the push for this legislation is on the heels of a number of employee-centric initiatives, including the EEOC’s guidance seeking to limit the use of criminal background checks, potential guidance applicable to credit background checks, as well as an increasing number of cities and states opting to “ban the box,” effectively removing questions related to an individual’s criminal history on job applications.