Many employers currently use credit reports when they’re hiring or promoting employees, especially employees being considered for financial and top-level positions. Several late payments or too much debt could indicate irresponsibility or likelihood to extort money from the company, and could result in an applicant being turned down for the position.
But credit report blemishes don’t necessarily reflect job performance. If passed, new legislation would prohibit employers from checking credit reports.
The Equal Employment for All Act was introduced in the House of Representatives by Steve Cohen and a group of 34 other Democratic Representatives. The bill proposes to stop employers from using credit checks to make "adverse employment decisions."
"Financial problems reflected on a negative financial report often stem from circumstances outside of the person’s control such as medical problems, illnesses, or layoffs," said Congressman Cohen in a press release. "It is unfair and makes no sense to further penalize those job seekers who want to work hard but have had financial difficulties by denying employment solely on the basis of their credit."
According to a press release by Rep. Luis V. Gutierrez (D-IL), one of the bill’s co-sponsors, the current use of credit reports for employment purposes prevents some "credit-challenged" consumers from rebuilding their credit by keeping them unemployed. "Far too often, employers turn down these applicants because they have erroneously linked credit scores to potential job performance."
Credit-challenged consumers include senior citizens, low-income families, students, recent college graduates, senior citizens, and minorities. Congressman Gutierrez is the chairman of the Subcommittee on Financial Institutions and Consumer Credit.
If passed, the law would amend the Fair Credit Reporting Act (FCRA), the Federal law that guides the updating and usage of credit reports. The FCRA currently allows employers to run credit checks, but requires them to get a signed written consent form from the applicant. If adverse action is made because of information in the consumer’s credit report, that person has the right to dispute the information and reapply for the position. The new law would prohibit employers from checking credit reports, even if the employee signs a consent form.
There would be some exceptions with the new law, keeping it legal for employers to use credit reports in certain situations. Credit reports would continue to be used for positions that require national security or FDIC clearance, jobs with state and loan government agencies that already use credit reports, and certain positions at financial institutions. Credit reports may be used for employment purposes in other positions as required by law.
A number of civil rights groups have endorsed the new legislation including the National Consumer Law Center, National Employment Law Project, National H.I.R.E. Network, the Leadership Conference on Civil Rights and the NAACP.
The House Committee on Financial Services is currently reviewing the bill.
For more information on how an employer credit check affects your credit score, visit our guide on Who Can Access Your Credit Report.