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States may ban credit checks on job applicants

Tuesday, March 2, 2010

Terry Becker and his 10-year-old son Nate pose Feb. 24 in their Milton, Wis., home. Terry Becker said he racked up medical debt for the boy, which has left him with bad credit.
(ANDY MANIS ~ Associated Press)
ANNAPOLIS, Md. -- It's hard enough to find a job in this economy, and now some people are facing another hurdle: Potential employers are holding their credit histories against them.

Sixty percent of employers recently surveyed by the Society for Human Resources Management said they run credit checks on at least some job applicants, compared with 42 percent in a somewhat similar survey in 2006.

Employers say such checks give them valuable information about an applicant's honesty and sense of responsibility. But lawmakers in at least 16 states from South Carolina to Oregon have proposed outlawing most credit checks, saying the practice traps people in debt because their past financial problems prevent them from finding work.

Wisconsin state Rep. Kim Hixson drafted a bill in his state shortly after hearing from Terry Becker, an auto mechanic who struggled to find work.

Becker said it all started with medical bills that piled up when his son, now 10, began having seizures as a toddler. In the first year alone, Becker ran up $25,000 in medical debt.

Over 4 1/2 months, he was turned down for at least eight positions for which he had authorized the employer to conduct a credit check, Becker said. He said one potential employer told him, "If your credit is bad, then you'll steal from me."

"I was in a deep depression. I had lost a business, I was behind on my bills and I was unable to get a job," he said.

Hixson calls what happened to Becker discrimination based on credit history and said his bill would ban it.

"If somebody is trying to get a job as a truck driver or a trainer in a gym, what does your credit history have to do with your ability to do that job?" Hixson said. He said he knows of no research that shows a person with a bad credit history is going to perform poorly.

Under federal law, prospective employers must get written permission from applicants to run a credit check on them. But consumer advocates say most job applicants do not feel they are in a position to say no.

Most of the bills being proposed this year resemble laws in Hawaii and Washington that prevent employers from using credit reports when hiring for most positions. The laws contain exceptions in cases where such information could be relevant to the job -- for example, if the person is applying to work in a bank or an accounts-payable office.

On a national level, Rep. Steve Cohen, D-Tenn., introduced a similar bill last summer in Congress, where it is still in committee.

Even though more companies are using credit checks, only 13 percent perform them on all potential hires, according to the Society for Human Resources Management's most recent survey. Mike Aitken, the group's director of government affairs, said a blanket ban could remove a tool employers can use to help them make good hiring decisions.

Aitken pointed to a 2008 survey by the Association of Certified Fraud Examiners that found the two most common red flags for employees who commit workplace fraud are living beyond their means and having difficulty meeting financial obligations. The same survey estimated American companies lost $994 billion to workplace fraud in 2008.

Aitken said someone who cannot pay his or her bills on time may not be more likely to steal, but might not have the maturity or sense of responsibility to handle a job like processing payroll checks.

Last year California lawmakers voted to curb the use of such checks, but Gov. Arnold Schwarzenegger vetoed the bill under pressure from chamber of commerce leaders who called it a "job-killer."

But Maryland Delegate Kirill Reznik, who drafted the bill being considered in his state, said people struggling to get jobs need help.

"We are in the great recession and this creates a vicious cycle," Reznik said. "People lose their jobs, that naturally precipitates them getting behind on bills, their credit scores go down, they are trying to find a job to pay off the bills, and employers won't hire them because of their credit score."

Maryland public school employee Jen Harwood said running credit checks on job applicants "perpetuates the divide between the haves and the have-nots."

"If you continue digging into people's past and not looking into what people have to give today, you are making a bigger divide," Harwood said.

Consumer advocacy groups are also lining up behind the legislation, pointing out that credit reports can contain inaccurate information.

Becker, the Milton, Wis., resident with bad credit, has found work dismantling cars at an auto recycling company that did not ask to run a credit check. He worries, though, about friends in the auto industry are looking for work and coming up empty-handed because of credit problems.

"It just seems like once you fall behind, you're behind," he said. "It's really hard to get back on the right financial track."

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Yes, and they have been doing this "discrimination based on credit history" for years at your insurance agency and hardly anyone knows about it. its called insurance credit reporting were they "profile your credit rating" so they can raise your rates because they say people with poor credit are more likely to file a claim. to me, its another way of them lining their pockets and creating a separation of the rich and the poor, because I know many people who have poor credit and don't go around filing claims all the time. Its amazing to me that they can do this " credit profiling" and get away with it. An insurance company is not a lending institution and shouldn't have anything to do with deciding if someone is going to file claims or not because by filing claims your insurance will go up anyway, so its a double jepordy anyway

-- Posted by tlc2cann on Tue, Mar 2, 2010, at 10:10 AM

I agree with tlc2cann on this subject. My credit history is my business, and none of my employer's or insurance companies business!! And how the heck is it right to charge people with poor credit history higher rates, etc., punish them because they may be less fortunate than others? I've been laid off a few times, medical bills, a lot of different factors that have lowered my credit rating. Not by my choice, but yes, it did affect my ability to pay my creditors. I think it is a very unfair practice that many, many companies are getting away with. Make the poor poorer!! Good ole USA goverment at work for you!

-- Posted by Ang on Tue, Mar 2, 2010, at 10:30 AM

Pepsi down in Sikeston runs credit checks on all potential employees, even if you are applying for a janitor position.

-- Posted by gomer on Tue, Mar 2, 2010, at 11:04 AM

Yes, its like being kicked while your down, and I have wrote just about all of my representatives about it,Democrat and Republican,and more or less they all blew me off , because we all know that in Washington they are all out for the big money and themselves. I'm just the little guy here in Missouri that they can swat away like a fly.Guess the old way of thinking the government is OF, By, and for the people is out the window.They think were all uneducated ,stupid, and don't know whats going on. Well, I got news for them,they work for me,and all the unheard little people are fed up with their stuff, and some day all the unheard people are gonna get tired of it and speak up with one loud voice...

-- Posted by tlc2cann on Tue, Mar 2, 2010, at 11:12 AM

tlc2cann & Ang: Having written actuarial software the insurance companies are exactly right about those with low credit scores filing significantly more claims.

If two people both get into a minor fender bender that causes $1000 worth of damage to their car and they each have a $500 deductible who is more likely to file a claim? Someone who is in debt and desperate for cash? Or someone who can afford to take a longer view that collecting $500 now isn't worth having the claim on their record(and thus likely costing them more in the long run or getting their policy dropped).

Same thing with insurance fraud. Two individuals both have expensive cars with loans they are significantly upside down on and can ill afford. The person with good credit can sell the car short (and get a personal loan for the difference), buy a different vehicle and roll the car debt into a new loan, or use home equity or other sources to pay off the bad car loan. They have lots of options to get out from under the car debt. Those with bad credit can basically either let it become Repo'd or they can come up with a scheme to wreck or burn the car and collect the insurance money on it.

As for jobs it depends on the job and its responsibilities. Someone who is seriously in debt to the point of worrying about keeping a roof over their childrens heads is simply more likely pocket some cash or defraud a customer than the same sort of person without similar concerns.

-- Posted by Nil on Tue, Mar 2, 2010, at 12:10 PM

IMHO, you couldn't be more wrong Nil. As for jobs, someone who is seriously in debt and worrying about keeping a roof over their childrens heads is LESS likely to take the chance of losing their job than someone who doesn't need the job to begin with. Hence, they are less likely to pocket cash of defraud a customer.

-- Posted by all_i_hear_is_blah_blah on Tue, Mar 2, 2010, at 12:19 PM

Sometimes even if a person has good credit they'll steal from their work; they like the thrill.

-- Posted by redpen on Tue, Mar 2, 2010, at 1:28 PM

I have always disagreed with the ability of employers and insurance companies to run credit checks. Even if what Nil says is true--I don't agree with it, but let's say for argument's sake that it's true--I still don't see how that is any different from profiling. And as Ron White says, profiling is wrong!

Potential employers, you think that because I have a low credit score or poor credit history that I'm more likely to steal from you? Well what gives you the right to assume that I'm a criminal? Every other type of assumption is protected against: you're not legally allowed to assume that if I'm black I'm going to steal, if I'm a woman I won't do as well at the job, or that I'll sleep with you, or any other racist, sexist, or stereotypical profiling. So why are you allowed to assume that because I had to have emergency surgery when I had no health insurance (that's what my bad credit is from, thank you very much) that I wouldn't make a good employee? Maybe I should get to check your credit history to see if I think you would make a good boss!

-- Posted by MusicMaker on Tue, Mar 2, 2010, at 2:19 PM

Well I could use myself as an example, I have never filed any claim on n auto or home. a couple of years ago I was laid off from my job, and got behind on my credit cards and my credit declined. I was never late with the house payment at all during this time. My so called "fixed rate mortgage" kept going up (now its at 200 more then the original payment)because my escrowed insurance premiums went up each year because of my declining credit. So you tell me its right to raise someones rates and call them guilty until proven innocent even before a claim is committed. they shoulldn't be able to judge someones "character" by their credit report.So, "insurance companies are exactly right about those with low credit scores filing significantly more claims" is not a true statement,its just more bologna they are using to dip in deeper to everyones pockets

-- Posted by tlc2cann on Tue, Mar 2, 2010, at 5:02 PM

I can see both sides of this debate. But another component not mentioned is all the social websites that people post their daily ramblings on. It is amazing what alittle bit of time at the computer and how and what you can find out on just about anyone. Futhermore some of the pictures people post with their smiling faces in their birthday suits may have an adverse effect on getting a "second look" at a job interview.

-- Posted by gman on Tue, Mar 2, 2010, at 5:39 PM

One more thing, getting your name in the paper for stealing, beating up someone (Semo story today), meth etc will do more harm to you and your chances of a interview with again a simple search online. These things stay out there forever.

Heck just the other day on Google news archive I found my wife and I's engagement announcement from over 20 years ago that was posted in the Missourian.

My child wants to spend the night with someone, you can bet I have done my homework on them and I don't need a social security number. This is of course before or after meeting them. So my point is if someone wants to get to know your past before hiring you they can do it without even checking your credit report.

-- Posted by gman on Tue, Mar 2, 2010, at 5:49 PM

all_i_hear_is_blah_blah: Even people with good credit tend to "need" their jobs too. The difference is when a person with good credit finds themselves in desperate situation and needs quick cash they have plenty of options to obtain that money that a person with bad credit does not. If your electricity or water is about to be disconnected often a person with bad credit cannot afford to simply wait another week or two until their next paycheck.

By the same token even if people with bad & bad credit are exact each others equal in moral turpitude they still have outcomes due to their credit that change their value to an employer. For example if two employees both get a DUI late one night, who is going to make their bail quicker and make it to work on time the next morning? If both of them have major car problems that require expensive repairs who is more likely to be able get a fast tow & fast fix so that they can make the commute (particularly if they are a delivery driver or otherwise use their personal vehicle for work purposes).

-- Posted by Nil on Tue, Mar 2, 2010, at 5:58 PM

tlc2cann: You as an example are a huge sample size of 1. Take a stats class please. Besides credit score is but one factor. Should 16 year old beginning drivers with Mustangs have the same price of insurance as a middle aged soccer mom in a minivan? Clearly some of those 16 year olds will be extraordinary responsible drivers and some of those minivan moms will be utterly irresponsible, but statistically their groups are extremely different. Should insurance be flat rate or what do you believe is acceptable information for an insurance company to base their calculations on? I can certainly control my credit score more than my age after all...

Anyway if you can find an edge in pricing to a certain demographic group that is being overcharged by current insurers go into the insurance business and you can make a killing. The companies all have slightly different actuarial algorithms which is why you should also shop around, but when every company is keying in on the same factors it is a fairly good sign that those correlate well with the actual risk. If a competitor found it did not correlate they would do well to market to individuals with poor credit and poach their business with cheaper rates.

-- Posted by Nil on Tue, Mar 2, 2010, at 6:09 PM

hello out there

-- Posted by badagolfer on Tue, Mar 2, 2010, at 11:02 PM

I agree with everything Nil is saying. In my opinion, low credit scores generally reflect the responsibility of an individual save for those few whose circumstances were out of their control (eg identity theft). But still, protecting your credit score should be of paramount importance. Check it regularly and don't use one of those websites that advertise free credit reports. Check it yourself and do not enroll through any programs through your bank. Nearly 3/4 of all credit reports contain errors, so read them carefully. Keep a reserve of cash on hand or a line of credit on hand for unexpected emergencies, but never go over half of your line of credit. Folks we cannot continue to live paycheck to paycheck. There may be no social security available to those born after 1960 and it is up to us to save, save, and save through 401K's and IRA's.

-- Posted by Beaker on Tue, Mar 2, 2010, at 11:04 PM

I say we tell the government to get out of our business altogether!!! Credit scores,employment,health care. We have sat and whined about everything and TOLD the government to get involved and take "care" of it. As they say, "you asked for change" and now you have it and don't like it! Just like the people along the river. If you know it floods, build your home on a hill or don't complain to the government when it is 6 feet deep in your living room!!!!!

-- Posted by mohacker on Wed, Mar 3, 2010, at 7:28 AM

Geez, I wonder if those of you who agree with this ignorant and deliberate infringement upon our rights are the same ones who are screaming about Government credit and the national debt.

Who keeps an eye on them. Frankly I bet if we checked all our law makers credit problems they would **** near all be out of a job. What many of you are saying is that its ok for a potential employer to check every private aspect of your lives. I completely disagree with this policy and think anyone who does support it cares very little about civil liberties. I applaud these States that are thinking about banning this pathetic credit check on potential employees.

As I recall each credit check would be considered a hit and each hit lowers anyones credit score!

Some things employers do are just plain pathetic not to mention STUPID!

-- Posted by GREYWOLF on Wed, Mar 3, 2010, at 10:43 AM

what bull!! this is just another hair brained idea. i could see the insurance companies doing it to jack up rates, but employers? geeez.

-- Posted by workingdude on Sun, Mar 7, 2010, at 11:47 AM

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