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Employers Need to be More Cautious in Handling Job Applicants’ Credit Report

By Faye Mergel
Published: Sunday, January 10th, 2010

After the economy suffered a huge downfall a few years ago, employers started to believe that the success of their company largely depended on people who knew how to manage their finances well. More and more employers are now checking the credit report and credit scores of job applicants before making hiring decisions. Some of them even refuse to promote an employee if there are numerous black marks on his credit report. However, consumer advocates warn that employers will have to stop their practice soon, as new statutes governing the use of a consumer’s personal and financial information will soon take place.

Last year, Democrat Representative Steve Cohen of Tennessee sponsored a bill that would prohibit employers from using a credit report in making hiring or promotion decisions. HR 3149, otherwise known as Equal Employment for All Act, was first introduced July 2009 and is now on the House Committee on Financial Services.

While the bill is still undergoing legislative process, federal government is already passing statutes that would protect consumers from unfair practices through the Equal Employment Opportunity Commission (EEOC). As part of their initiative to protect consumers, the Commission reminds employers that the use of credit reports and criminal records have adverse impact on some races, such as Latinos and African-Americans.

EEOC recently launched E-RACE, or the Eradicating Racism and Colorism from Employment. EEOC officials started requesting information from employers all over the United States on how they use and require credit report and criminal records as basis for hiring or rejecting job applicants.

Additionally, the Commission has engaged in many lawsuits involving disputes regarding the background-screening procedures and policies of companies. Just this September, EEOC filed a case against Freeman, a marketing company based in Baltimore, MD., for allegedly using procedures that have negative impacts on African-American applicants and male Hispanic job seekers.
EEOC also filed a lawsuit against Peoplemark Inc. last year, for allegedly denying employment to job applicants who have a criminal record. Federal officials say such practice is unfair against African-American applicants.

Just as federal agencies are taking steps towards restricting the unfair use of credit report data, state officials are likewise doing their part. Both Hawaii and Washington have passed laws that restrict employers from basing their decisions on the credit report of employees and applicants. Because of this, experts warn that employees must be more aware of state laws in places where they do business to avoid facing legal sanctions.

Meanwhile, advocates comment that employers would do best if they consider credit report information more narrowly.

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