Controversy Over Credit Reports as Background Checks

For quite some time now employers have been ordering job candidate’s credit reports as part of their series of background checks.   the credit reports, it has been long believed, will not only reveal someone’s credit, but will show their ability to manage money and provide also a better sense of their behavior patterns.   The credit reports are indicators of bad credit, so the employer may take into consideration that if they do hire a particular job applicant whether credits will attempt to garnish wages.  This can be problematic and at the least requires additional bookkeeping on the part of the employer.

It has long been believed that a poor credit report will help indicate whether a job candidate would have the proclivity to steal out of desperation.  n employer would consider whether its funds, its proprietary databases or sensitive information would be vulnerable to  the employee’s desperation and the subsequent theft of that information.   For employers hiring accounting and financial workers, it is important to know that their job candidates can manage their own finances before trying to manage those of a business.   This appears to be sound and logical thinking.

However, different states believe that employers should be prevented form conducting credit reports on their employment candidates.   They deem the reports invasive, and depending on the state, are trying to pass legislation to prohibit credit reports for employment purposes, unless the report is directly relevant to the position the job applicant is being considered for.    California is one such state that wants to restrict credit reports for employment purposes.  Now Maryland has Bill175 that is similar in content.

The Maryland bill would prohibit an employer from using an applicant’s or employee’s credit report or credit history in determining whether to deny employment to the applicant, discharge the employee or determine compensation or terms, conditions, or privileges employment; authorizing an employer to request or consider an applicant’s credit report or credit history under specified circumstances; authorizing an applicant or employee to bring an action for injunctive relief, damages, or other relief for a violation of a specified provision of law; etc.

Part of the concern on the part of state to prohibit credit reports for employment consideration is in relation to the economic downturn.  It is no secret that the tanked economy has caused many a job applicant credit to head south.   Applicants have been denied jobs because of poor credit.  Of that there is really no question.

While states wish to protect their citizens, to some extent they are denying rights to the employers.  An employer should have the right to review a credit report as this will help ascertain a job applicant’s behavior pattern, the way he or she manages money.  A discerning employer can make the distinction between someone with good credit who got into trouble due to extensive medical costs or a house turning sour in the real estate market and someone buying a car that was priced way over their salary range.

While it is a difficult economy and a competitive market for the employment candidate, it is also a tough economy and highly competitive for the employer.  The last thing an employer needs is to hire a desultory employee, someone who out of desperation is prone to steal or utilize sensitive and proprietary data for his or her own benefit.   It happens.  In fact, it happen frequently enough to be of some concern.

States should reconsider these laws.  To prohibit employers to conduct credit reports as preemployment background checks can cause obstacles that would result in financial loss and public embarrassment.   And then there is a matter of added bookkeeping,  setting up the salary schedule so the employee’s credits get their due.   There may be no easy answer.   In any case this issue bears further scrutiny before these bills are rushed into law.