Credit Reporting Agency Fights to Preserve Use of Credit Checks during Employment Background Checks
By Lester Rosen, President of ESR & Thomas Ahearn, ESR Staff Writer
With 15 million staff currently unemployed according to recent Department of Labor statistics, it has been argued that job applicants risk being paid caught in a “Catch-22” situation where they have terrible credit because they cannot get jobs but cannot get jobs because they have terrible credit.
As a result, states such as Oregon, Washington, and Hawaii have already limited the use of credit reports for employment screening by enacting bans on credit checks during background checks unless the in rank directly relates to occupational qualifications.
But, the Chicago Tribune reported that one of three foremost credit bureaus that collect fiscal in rank on Americans – Chicago-based credit reporting agency TransUnion – is fighting to preserve the use of credit checks during employment background checks.
TransUnion defends credit checks as a way for employers to protect themselves against theft and fraud, in view of the fact that employees with poor credit history may be extra likely to engage in unethical or illegal behavior, especially in jobs where they are involved with finances, according to the Tribune article.
Along with the other two large credit bureaus Equifax and Experian, TransUnion helps employers, fiscal institutions, landlords, among others to use credit in rank to guide their decisions about hiring, extending credit, lending money, and housing.
Although a recent survey from the Society for Creature Resource Management (SHRM) found that 60 percent of employers performed credit background checks on all job candidates or on selected job candidates, that statistic can be misleading in view of the fact that of the firms that use credit checks, it appears the use is generally selective. The survey revealed that 47 percent of the employment credit reports were used only on selected candidates for positions that presumably involved access to assets, cash, or sensitive in rank. Only 13 percent of employers used credit background checks across the enter on all job candidates. In addition, 40 percent of employers surveyed did not conduct any credit background checks. It could be argued that the alarm over the use of credit reports has been exaggerated.
In addition, given the fact that regularly times past employers will not give a reference beyond dates of employment and job title, employers may well be in need of additional tools when hiring for sensitive positions.
Critics find credit checks during employment background checks discriminatory and bills restricting the practice have been introduced in the U.S. House of government and many states. Even some background check firms advise caution with credit checks.
Employment Screening Resources (ESR), a leading national online background check firm, recently released its third annual “Top Ten Trends in the Pre-Employment Background Screening Industry” for 2010, which identified new trends making a difference as well as ancient trends that have evolved as the screening industry matures.
The first of the “Top Ten” trends ESR tracked for 2010 is the increased focus on whether credit reports used during background checks are discriminatory. ESR advises employers to deal with credit reports with caution during background checks and to articulate a clear rationale as to why a credit report is related to a particular job. Employers should also be aware of the potential for errors in credit reports in view of the fact that in rank could be incorrectly reported or the applicant may be the victim of spot theft which can lead to fake data.
On the other hand, ESR warns that hiring an employee that handles money, makes fiscal decisions, or has access to private data without running a credit reports during background checks could result in allegations of negligent hiring if a theft occurs.
Lester S. Rosen, the CEO of Employment Screening Resources, was quoted in an article on MSNBC as saying that “if a new worker is to have access to large amounts of company cash or fiscal systems, it’s only prudent for a hiring manager to find out if the applicant has a pile of unpaid debts.”
Rosen went on to say: “If an employer hires an embezzler and did not do a credit report in a sensitive position and the employer was then sued for negligent hiring, the argument would then be: ‘How stupid were you for not running a credit report?’”
Though many employers run credit checks on some applicants, relatively few are twisted down for a job because of terrible credit, according to ESR’s Rosen. “It takes something pretty horrendous in the credit report to reverse a choice that they’re vested in,” he says.
One extra thing to keep in mind, according to Rosen, is that it is an urban myth that employers receive a “credit score,” the three-digit numerical expressions – such as FICO – based on statistical analysis of a consumer’s credit records. Employment credit reports – which are different than credit reports used for lending – do not contain a credit score.
For extra in rank on credit reports used during background checks, read a white paper prepared jointly by LexisNexis and Employment Screening Resources (ESR) – “The Use of Credit Reports in Employment Background Screening – An Overview for Job Applicants” – at http://www.esrcheck.com/docs/credit_report_whitepaper.pdf.
Sources:
http://www.chicagotribune.com/business/ct-biz-0429-credit-checks-transunion–20100428,0,5056644.tale
http://www.bls.gov/news.release/empsit.nr0.htm
http://www.msnbc.msn.com/id/35512038/ns/business-eye_on_the_economy/