HR: Credit Checks on Job Applicants
In August of this year, the state of Illinois joined the states of Oregon, Hawaii and Washington in adopting laws that prohibit employers from doing credit checks on job applicants. Lawmakers in 16 other states(including Maryland) and in the District of Columbia also attempted to pass laws prohibiting credit checks of job seekers. None of the bills passed in these states- finding tough opposition from business leaders and chambers of commerce.
The IL Employee Credit Privacy Act prevents employers in the state from using the credit history or credit reports of employees/applicants to make hiring, firing, termination, promotion or other employment related decisions. Once the law takes effect on January 1, 2011, employers will not be allowed to ask about credit history or obtain credit reports from employees or applicants. The Act applies to all employers in the state regardless of size- but it does have a few exceptions. Entities in banking, insurance, debt collection, as well as state law enforcement agencies and state and local governmental agencies are all exempt from this Act.
Many state officials believe prohibiting credit checks of job applicants is particularly important during these economic times. The IL Governor stated “a job seekers ability to earn a decent living should not depend on how well they are weathering the greatest economic recession since the 1930’s”.
Employers throughout the country may disagree. A recent survey by The Society of Human Resource Management revealed 60% of employers run credit checks on at least some applicants. (Up from 42% in a similar survey done in 2006) Many employers feel these checks give them valuable information about an applicant’s honesty, integrity and their sense of responsibility. Credit checks are viewed as part of a hiring strategy that helps to prevent putting “at risk” applicants into positions that could potentially harm a company.
Although many states were unsuccessful at passing laws prohibiting credit checks, employers may soon be obliged to follow similar procedures. In September, the House Financial Services Committee proposed federal legislation that would make it unlawful to base adverse employment decisions against employees and applicants on credit reports. If this bill passes, it could include provisions that would significantly impact the hiring strategies of employers and the processes that are used for evaluating job applicants.