About Us  |  About Cheetah®  |  Contact Us

Job-related credit checks: Good for the gander? Depends on who the goose is

March 15th, 2010  |  Lucas Otto

Here is a scenario that has played out all over the country:

You have exhausted your savings, cashed out your 401(k), your bills have not been getting paid, your mortgage is past due, and this all stems from losing your job in one of the worst economic climates since the Great Depression. Alas, you finally secure a job interview and, in fact, they are about to offer you a job. However, that employer just ran a credit check on you, and so back to the unemployment trenches you go.

Does that sound familiar? It should, as it is a problem facing applicants and employers across the country. There is certainly nothing completely new about an employer running job-related credit checks on employees—it has been going on for years. What is new is the large number of unemployed (national rate is 9.7%), and the growing list of individuals that are up to their ears in debt due to loss of employment. Businesses continue to hire at a slow pace, and so the unemployed continue to dig deeper into debt, and when they actually get an interview, they are faced with their potential employer showing them the door because the debt they incurred from losing their old job is now preventing them from getting a new job.

This is a vicious cycle, indeed. In a research report conducted by the Society for Human Resource Management in January of 2010 on conducting credit background checks, 433 randomly selected HR professionals from SHRM’s membership were polled and some of the questions and results were as follows:

  • Does your organization, or an agency hired by your organization, conduct credit background checks for any job candidates by reviewing the candidates’ consumer reports? 13% for All Job Applicants; 47% for Selected Job Applicants.
  • If a credit background check revealed information that presented the job candidate’s financial situation negatively, what types of information are MOST likely to affect your decision to NOT extend a job offer? Current outstanding judgments, 64%; Accounts in debt, 49%.
  • What is the primary reason that your organization conducts credit background checks on job candidates? To reduce/prevent theft, 54%; To reduce legal liability for negligent hiring, 27%.

When taken as a whole, these are pretty stark numbers, especially when 60 percent perform some type of credit background check on its applicants. Some states have attempted to curb this practice. The Oregon House, for example, passed SB 1045, the Job Applicant Fairness Act, which will restrict job-related credit checks and is designed to make it easier for applicants to get back to work. According to Representative Tina Kotek (D-N/NE Portland), “Oregonians are out of work, and some have fallen behind on mortgage or car payments. This makes finding employment even more important,” said the bill’s chief sponsor in the House. “It simply makes no sense to essentially punish a job seeker for not having a job.”

Many states, as well as Congress, in fact, are looking into stopping this process. Yet, for some, mainly businesses, the question is “Why?” Is it wrong for employers to not want to hire an individual who has outstanding judgments, or because the employer feels that someone in heavy debt may potentially be more apt to engage in theft? In all factuality, businesses are in the business of making money, first and foremost. Potential threats from theft/embezzlement, as well as any legal liability from negligent hires, will certainly put a dent in any businesses’ bottom line, right? And no one would begrudge a business for not wanting to actually make, not lose, money.

So which side is right? It depends on which side of the fence you are on. And it is not just employers verses employees. Many employees working at these businesses have a stake in making sure that their company makes money, too, so they may also favor keeping these credit checks alive. The simple truth is, however, that those out of work need work, and legislation like that passed by Oregon is an attempt at making it easier for these individuals to climb out of debt. Employers, however, certainly have a right to worry that an attempt to help these unemployed individuals by banning credit checks won’t present troubling consequences for their business in the future.