Credit Scores and Hiring

Strange economic times can lead to strange…well, almost everything. Strange news stories. Strange public policy discussions. Strange moral arguments. Strange issues for your hiring managers or human resources people to wrestle with.

Consider that Ohio, California, Colorado, New Jersey and at least 20 other states have implemented or are considering legislation that would prohibit employers from discriminating against job applicants with a sketchy credit history.

Who even knew?

The story gets potentially bigger. At the national level, Rep. Steve Cohen, a Democrat from Tennessee, has introduced legislation that would prohibit employers throughout the country from using credit checks to screen job hunters.

The Trend

According to a New York Times article published last summer, about 60% of potential employers now conduct credit checks on applicants, which is up from less than 20% ten years ago. Aggressive marketing by the credit score reporting industry is thought to be the primary cause of the jump in activity.

Supporters of using a bad financial profile as a factor in hiring decisions justify it by pointing to statistics regarding employee theft and the possibility of workplace distractions brought on by a worker’s financial difficulties. But mostly, they think – barring illegal and blatant discrimination – they should be able to hire or not hire whomever they want.

Opponents consider this activity a solution looking for a problem. They say there is no evidence showing that people with marginal credit scores are more likey to be poor employees or to be guilty of fraud or theft at work. They also say that this could, ironically, prevent a qualified applicant from securing the kind of position that could get him back on his feet financially.

Employers in California and Illinois can now only check an applicant’s credit score if the candidate is applying for a managerial position or for a position that consistently involves processing certain sensitive data, including bank information or Social Security numbers.

In Ohio, similar legislation has been introduced at least twice.

In 2009, then Senate Minority Whip Ray Miller introduced Senate Bill 91, which would have made discrimination by an employer because of credit history an unlawful discriminatory practice under Ohio Civil Rights Law.

A the time, Miller said he introduced the legislation because he heard about two women whose positions at the Defense Supply Center Columbus were terminated because of their credit histories.

Miller was term-limited, and the bill died in committee.

Currently, State Representative Alicia Reece, a Democrat from Cincinnati, is sponsoring House Bill 131 to ban credit checks in employment decisions, including hiring and firing. The proposed legislation allows exceptions for supervisory, managerial, or executive positions at a financial institution. According to Rep. Reece, nearly 65 percent of Ohio employers use credit checks during the hiring process.

The bill was assigned to the Commerce and labor Committee last year and is awaiting a second hearing.

So as of now, Ohio employers can operate as they were.

What to Do?

So where does this leave you and your business?

In theory this is one of those times where your heart says, “Don’t kick someone while he’s down.” But your head says, “It’s business. You need to be responsible and conduct due diligence.”

Besides, in the worst case scenarios, these situations can lead to complications and serious embarrassment. Several years ago executives at a major trade magazine were considering a Chapter 11 filing, in order to reorganize with the company’s creditors, only to discover that their chief financial officer, who would presumably lead them through the crisis, had filed personal bankruptcy a couple years before. That doesn’t instill confidence.

For now, Ohio law doesn’t prohibit you from using credit report information in personnel decisions, but stay tuned. Make sure your hiring managers and human resources people are informed. If in doubt, consult an employment attorney.

MP Star Financial’s invoice factoring services can help make your cash flow more predictable, enabling you to meet your company’s obligations on a timely basis. Call MP Star Financial for more information at (800) 833-3765, ext. 150.

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