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California May Be Next to Limit Employer Credit Checks

• August 31, 2011 • 3:41 PM

A bill on the floor of the California Senate, if passed and signed, will limit employers’ ability to conduct credit checks of non-managerial employees.

John Greenya wrote for Miller-McCune.com in June about the vicious cycle that employer credit checks can create for job seekers. If you’re unemployed and you’re behind on some credit card bills or you have a bad mortgage, suddenly your credit report* might be another barrier to finding a new job and getting back on your feet.

Businesses that use credit checks as an employee screening tool may argue that it helps them pre-emptively weed out bad apples.

Organizational psychologist Michael Aamodt told the U.S. Equal Opportunity Commission last year that a meta-analysis of the tiny amount of research done on the question found a statistically significant, but low, correlation between poor credit history and “counterproductive work behaviors.”

When the Society for Human Resource Management polled its members in 2010, it learned that 13 percent require the credit reports of all applicants, and almost half (47 percent) of its member companies require them of some job applicants.

Four states, Hawaii, Washington, Oregon and Illinois, either ban or sharply limit the practice, and a number of states have seen failed legislative attempts to enact similar laws. In the nation’s most populous state, a legislator is currently trying for a third time to ban the practice (with some exemptions for people like police or managers).

California Assemblyman Tony Mendoza’s latest effort follows up on the same legislation that passed the state Legislature in both 2009 and 2010, but was vetoed both times by then-Governor Schwarzenegger. (“California’s employers and businesses have inherent needs to obtain information about applicants for employment and existing law already provides protections for employees from improper use of credit reports,” Schwarzenegger wrote in one veto message.)

It is unclear whether the new governor, Jerry Brown, supports the legislation, which is currently on the floor of the state Senate.

“A credit report is not a good indicator of a person’s trustworthiness or work ethic,” Mendoza says. “Many Californians are still experiencing financial hardships from the economic downturn including layoffs, increasing unemployment rates, and the continuing foreclosure crisis. All of these things make it harder for people to pay their bills.”

*An earlier version of this story incorrectly referred to credit scores, not credit reports. Credit scores are not available to employers.

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Dan Watson
Dan Watson is a fellow at Miller-McCune. An editor originally from York, Pa., he has a bachelor’s in English from Emory University, and previously served as the editorial intern for Grist.

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