Should Employers be Allowed to Review Credit Reports?

The Fair Credit Reporting Act (FCRA) allows employers to review credit reports with written approval from the applicant. This has become a growing area of concern because of the economic conditions. Many have been unemployed for longer periods of time than in any time in history, which has impacted their ability to pay their debts.

Seven states passed laws which prohibit employers from reviewing credit reports, except for certain types of positions based on responsibility. These states are California, Connecticut, Hawaii, Illinois, Maryland, Oregon and Washington.

Employers receive almost everything on the credit report such as personal information, credit inquiries, loan and credit card payment history, collections, public records such as bankruptcies and liens. They don’t receive your date of birth, credit card account numbers or credit score.

Twenty seven groups including consumer advocacy, civil rights, community groups and labor unions have signed a document referred to as “Statement Calling on TransUnion to Stop the Sale of Employment Credit Reports”. According to these groups, TransUnion, one of the three major credit reporting agencies, was targeted because it is privately held and can adjust policies quicker than the other two companies – Equifax and Experian. In addition, TransUnion has led lobby efforts in some states on this issue. These groups want to stop credit reports being sold for employment purposes. They don’t see the correlation between credit history and employment. They believe that credit doesn’t determine what type of employee someone will make.
The “Statement Calling on TransUnion to Stop the Sales of Employment Credit Report” listed four reasons for TransUnion to stop selling credit reports for employment purposes:

1, Credit checks in hiring create a fundamental “Catch-22” for job applicants. You can’t pay your bills because you’ve lost your job or your hours were cut, and now you can’t get a job because you can’t pay your bills.

2. The use of credit in hiring has a discriminatory impact against African American and Latino job applicants. According to one study, the average credit score of African Americans and Latinos is roughly 5% to 35% lower than that of whites.

3. Credit history does not predict job performance. The study on this issue, presented to the American Psychological Association in 2003, concluded that credit history does not correlate with employee conduct.

4. Credit reports are inaccurate. A 2007 Zogby poll reported that 37% of people surveyed found an error on their credit report, and half of these respondents reported that they could not easily fix the mistakes.

TransUnion is being singled out, but is just one of three credit reporting agencies that sell credit reports to employers. They are permitted to do so according to the Fair Credit Reporting Act. Seven states have placed limitations on employer access, will more follow? Should the Fair Credit Report Act be amended to limit employers who can review credit reports? Should the credit reporting agencies police it themselves?

Credit Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

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