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Bad Credit Reports Put Job Seekers in Catch-22

• June 03, 2011 • 4:00 AM

More employers are subjecting job applicants to credit checks as a tool to determine honesty and responsibility, but is that accurate, or legal?

“There was only one catch and that was Catch-22 … Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn’t, but if he was sane he had to fly them. If he flew them he was crazy and didn’t have to; but if he didn’t want to he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle.”

Catch-22 by Joseph Heller

Heller’s famous conundrum is often misapplied to situations that are troublesome but not impossible. Today, as the economy continues to spin its wheels, there’s a closer fit.

Take the plight of Patricia Rosa. As reported by The Wall Street Journal‘s Kristen MacNamara, “After three rounds of interviews for a sales position with Prudential Insurance Co. of America, Patricia Rosa received a letter in February saying her job application was denied based on information from a background check she authorized the company to conduct. The only blemish on her record, she says: Poor credit that built up since she lost her job two years ago.”

“Simply put,” Chi Wu, a National Consumer Law Center attorney, told a federal panel last October, “a worker who loses her job is likely to fall behind on paying her bills due to lack of income. With the increasing use of credit reports, this worker now finds herself shut out of the job market because she’s behind on her bills.”

Citing the catch-22 analogy, she said, “A simple reason to oppose the use of credit history for job applications is the sheer, profound absurdity of the practice. Using credit history creates a grotesque conundrum.”

Terry Becker, an unemployed Wisconsin auto mechanic, saw his credit rating crater as a result of $25,000 in medical bills incurred by his 10-year-old son’s treatment for seizures. Late in 2009, Wisconsin State Rep. Kim Hixson (D-Whitewater) responded by introducing legislation to address Becker’s dilemma.

“If somebody is trying to get a job as a truck driver or a trainer in a gym,” Hixson asked, “What does your credit history have to do with your ability?” Hixson’s bill never made it out of the Wisconsin Senate last year, and in November, the two-term legislator was not re-elected. But his question is echoed by state representatives in Connecticut, Georgia, Illinois, Indiana, Maryland, Michigan, Missouri, New Jersey, New York, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina and Vermont. Laws forbidding the practice are on the books in Hawaii and Washington.

Employers say having prospective employees allow them to conduct credit checks gives them valuable information about an applicant’s honesty and sense of responsibility.

“An employer always takes on a degree of risk when hiring anyone,” argued a blogger at Boots & Sabers in a post that called Hixson’s bill anti-business. “It’s impossible to know everything about a person before hiring them. Looking at someone’s credit history is just one way to evaluate whether a person is right for the job. Of course, it depends on the job. Someone’s credit history may not matter a bit if you’re hiring factory line worker, but it’s certainly relevant when hiring a CFO. Given how costly and disruptive a bad hiring decision can be, the government should allow employers as many tools as possible to try to make a good decision.”

In February 2009, Eric Rosenberg of the credit bureau TransUnion testified before the Connecticut Legislature in defense of the practice. He pointed out that employee theft causes retailers to lose more than $30 billion each year. He maintained that a third of all employees lie on their job applications, and said more careful pre-hire screening is designed “to protect the safety of Connecticut residents.”

But lawmakers in the states listed above say the practice traps people in debt because their past financial problems have little or nothing to do with virtue.

Connecticut State Rep. Matthew Lesser (D-100th) put it more colorfully in 2010 when he introduced a bill to limit employers’ use of credit reports. “Bernie Madoff had a pretty good credit score,” he said, “and yet there is this consistent message that if you have a bad credit score, there is something wrong with you.” (For the record, employers’ use of credit histories don’t actually use a credit score, which is not made available to them. An earlier version of that story did not make this clear.)

“Using a job applicant’s credit history to deny employment is not fair because personal credit history is not an accurate predictor of job performance,” argues U.S. Rep. Steve Cohen (D-Tenn.), who in January introduced a bill to ban the practice. “We should be doing everything in our power to help people find jobs during these tough economic times — not hinder them.”

Cohen’s sentiments aside, the practice of requiring job applicants to supply credit reports, once unheard of, is spreading at a steady pace. When the Society for Human Resource Management polled its members four years ago, 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, up from 25 percent five years ago.

While more and more voices are being raised against the across-the-board requirement of checking a job applicant’s credit history, most observers do not object when the potential job involves access to money or valuables. Still, civil liberties proponents stress the lack of data to show a causal connection, even as other data show some populations — women, African-Americans, Hispanics — have lower credit scores than others.

As TransUnion’s Rosenberg acknowledged several months later while testifying in Oregon, there are no studies to indicate that low credit scores and low morals go hand in hand: “At this point, we don’t have any research to show any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud.” There are studies, though, that link stress and battling the bill collector to diminished work performance.

“There is so little research on the topic that any conclusions would be premature,” organizational psychologist Michael Aamodt told the Equal Employment Opportunity Commission last October during hearings on the use of credit history as an employment screening tool. “This lack of research is especially important to note because there have only been five studies that investigated actual credit history rather than self-reported levels of financial stress.”

Others suggest that in many cases, the real underlying reason may be employers’ fear of being sued if a teller pockets a packet of bills or a home care worker goes home with a patient’s diamond brooch. Having required a credit report gives the employer at least an initial line of defense.

The EEOC’s own chief psychologist, Richard Tonowski, identified four distinct reasons an employer might want to use credit screening and identified alternative (and less intrusive) tests in three of them: to identify productive employees; to identify reliable employees; and to confirm employment history. But in preventing “catastrophic loss” or negligent-hiring lawsuits, he found the way forward a little more problematic. Acknowledging that, after the fact, some bad apples showed financial woes, “We seem not to have good data on employees with similar financial need, but who successfully restrained their greed,” he said.

Tonowski did say that using the screening but not having workplace deterrents such as monitoring in place was only half the battle, although, once again, “The optimal balance of background checking and security measures, both fallible systems, is another area where we do not know enough.”

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John Greenya
John Greenya, a Washington, D.C.-based writer, is the author or co-author of 18 books. His work has appeared in The New York Times, The Washington Post, and The New Republic, among other publications.

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