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As a Hiring Filter, Credit Checks Draw Questions

New York Times - Andrew Martin

In defending employers’ use of credit checks as part of the hiring process, Eric Rosenberg of the TransUnion credit bureau paints a sobering picture.

Retailers lose more than $30 billion a year because of employee theft, he says. Workplace violence costs employers $55 million a year in lost wages. A third of employees provide bogus information on their résumés.

Screening the backgrounds of employees “is critical to protect the safety of Connecticut residents in their homes and offices, in their cars and in all other places they travel,” Mr. Rosenberg testified to Connecticut legislators in February 2009, explaining why TransUnion markets its credit reports to employers.

Trouble is, researchers say there is no evidence showing that people with weak credit are more likely to be bad employees or to steal from their bosses, a fact that Mr. Rosenberg himself later admitted.

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With millions of Americans nursing damaged credit reports after a bruising recession, some lawmakers are seeking to limit the use of credit reports as a factor in hiring.

Legislators in more than a dozen states have introduced bills to curb the use of credit checks during the hiring process, and three states have passed such laws.

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Supporters of such laws say they are necessary because an increasing number of employers are doing credit checks even though there is no proof that bad credit is a marker of risky employees.

Furthermore, they say the practice unfairly tars the huge pool of people whose credit was damaged by layoffs, medical bills or other factors beyond their control. They also say it disproportionately screens out minorities.

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Jerry K. Palmer, a psychology professor at Eastern Kentucky University, said his studies, though relatively small, found no correlation between the quality of an employee’s credit report and that worker’s job performance or likelihood to quit.

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Even so, the industry that sells credit checks has remained firm, mounting a counterattack against legislation with some success.

Bills introduced in California, Maryland and Connecticut, for example, have been stalled amid opposition from credit bureaus and other businesses. 

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In a survey released earlier this year by the Society for Human Resource Management, 13 percent of employers said they used credit checks on all job applications, while 47 percent said they used credit checks for certain applicants.

Among the employers surveyed, 54 percent said the primary reason they used credit checks was to prevent theft and embezzlement. Ninety-one percent said they used credit checks for applicants applying for positions with fiduciary or financial responsibility.

(Most of the proposed bills allow for credit checks to be used for positions that involve the handling of money or sensitive information.)

Employers can generally use credit checks — but not credit scores — during the employment process as long as they obtain written permission from the potential employee. But they are prohibited from denying someone a job based on selection criteria that are not directly related to the job, said Adam Klein, an employment discrimination lawyer in New York. 

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