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Employer Credit Checks Draw
Increasing Scrutiny
Special Report From: EasySmallBusinessHR.com
Running employer credit checks on potential hires? It’s a practice
drawing increasing criticism, prompting the Equal Employment
Opportunity Commission (EEOC) to recently hold a hearing on the
issue.
This nationwide scrutiny of employee credit checks has spurred
four states to pass legislation that limits their use, while 20 other
states and Congress have introduced similar bills. So why the
scrutiny?
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Opponents argue the checks prevent applicants with poor credit
from getting a job.
The recent economic crisis has created a large pool of
unemployed workers with damaged credit and high levels
of debt. Opponents argue that employee credit checks
have become a barrier to those workers finding a new job.
A few studies suggest that some groups, including
African-Americans and Latinos, tend to have lower credit
scores.
A representative from the National Consumer Law Center
testified to the EEOC that these types of issues make
employer credit checks “harmful and unfair to American
workers.”
Others question whether a credit score is a good indicator
of how an employee performs on the job. Opponents cite
an Eastern Kentucky University study that suggested a
poor credit history was not an accurate indication of job
performance.
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Employers argue credit checks flag potential problems.
For many companies, credit checks are an important screening
tool often used in conjunction with criminal records and
identity verification services. Employer credit checks typically
include information regarding credit history, bankruptcy
filings and prior employment information.
Those reports, however, often do not include a credit score,
which means that most employers never even see the number
that some research suggests may indicate racial disparity.
Advocates of employer credit checks argue that the practice
prevents loss and reduces risk by identifying the potential
fraudsters who might steal or embezzle company resources.
They cite evidence that suggests there may be a link between
an employee’s financial circumstances and the propensity to
commit fraud.
For example, nearly half of fraud criminals in one study were
having money problems and about the same number lived
above their means, according to the Association of Certified
Fraud Examiners.
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Employer credit checks may also protect a company from
litigation.
For example, a check might uncover an in-home healthcare
worker applicant who may be more likely to steal from an
elderly client, a crime that can trigger a civil suit against the
employer.
Stay updated on employee credit check legislation in your state.
State laws vary widely. While some states limit how employers use
credit checks, they may also offer exemptions for specific sectors
or industries.
For example, Illinois law exempts state and local government
agencies as well as debt collectors and insurance agents from credit
check limitations.
Start protecting your business today by staying up to date on
employer credit checks legislation.
Recommended Background Checking Resource: "Sleuthing
101: Background Checks and the Law".