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Subcommittee hears testimony on use of credit checks for prospective employees

May 20th, 2010  |  Connie Eyer

A hearing held last week by the House Subcommittee on Financial Institutions and Consumer Credit on “the use of credit information beyond lending” discussed the impact of credit reporting and credit scores on consumers seeking employment and insurance with regard to the Equal Employment for All Act (H.R. 3149).

Introduced by Rep. Steve Cohen (D-Tenn.), the bill, which would amend the Fair Credit Reporting Act (FCRA), prohibits the use of consumer credit checks against prospective and current employees for the purposes of making adverse employment decisions. The bill makes exceptions to such prohibition for employment: (1) which requires a national security or Federal Deposit Insurance Corporation (FDIC) clearance; (2) with a state or local government agency which otherwise requires use of a consumer report; or (3) in a supervisory, managerial, professional, or executive position at a financial institution.

In addition to Chairman Luis Gutierrez (D-Ill) and Member Maxine Waters (D-Ca), panelists offering testimony included: Michael T. McRaith, Director, Illinois Department of Insurance, on behalf of the National Association of Insurance Commissioners; David Snyder, Vice President and Associate General Counsel, Public Policy, American Insurance Association; John Wilson, Director, Analytics, LexisNexis Risk Solutions; Chi Chi Wu, Staff Attorney, National Consumer Law Center; Mark Rukavina, Executive Director, The Access Project; Stuart K. Pratt, President and CEO, Consumer Data Industry Association; Anne Fortney, Partner, Hudson Cook, LLP.

In his opening remarks, Gutierrez stated that the subcommittee’s intent in holding the hearing was to look at the disparities in the system while maintaining the core framework of credit information as a risk-management tool. Citing a classic Catch-22 situation, he noted that “pre-employment consumer credit checks are increasingly widespread, trapping many people in a cycle of debt that makes it harder to pay off their debts and harder for them to get the job that would allow them to pay off their debts,” adding that “the current system facilitates the denial of employment to those who have bad debt, even though bad debt often times results from the denial of employment.”  Expressing concern that consumers have to deal not only with the inaccuracy of their credit scores, but also the difficulty in getting negative information removed, Rep. Waters also requested that “witnesses can inform us about whether or not credit scores are a proxy for race and if so, what impact that is having on the ability of minority consumers to obtain credit.”

Speaking on behalf of the Consumer Data Industry Association, President and CEO Stuart Pratt cited a recent survey conducted by the Society for Human Resources Management that concluded, among other things, that: only 13% of employers consider credit information for all job applicants; 47% of employers consider credit information for applicants of certain positions (i.e., jobs that involve handling money); and, if a negative credit incident is found, employers are overwhelmingly (87%) giving the applicant an opportunity to explain the circumstances of the incident, which is more than what the FCRA requires. Also, while noting that the vast majority of employers do not use credit as a “yes or no” proposition, but provide prospective employees with the opportunity to explain their circumstances, Pratt argued that it would be premature to change current law and further restrict the flow of data for risk management without a full inquiry.