The spread of the
credit check as civil rights issue
Minorities are
starting to fight employers over the use
of credit history in
hiring.
By Ben Arnoldy, from
csmonitor.com from the Web, January 19, 2007
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Mary Knox Merrill - Staff
Lisa
Bailey: She says Harvard denied her a job because of her
credit history. |
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BOSTON, Jan 18,-- Lisa Bailey
worked for five months at Harvard University as a temp entering donations into a
database. When the university made the job a salaried position, Ms.
Bailey, who is black, saw a chance to lift herself out of dead-end jobs.
Bailey's superiors encouraged her to apply, she says, but turned her down after
discovering her bad credit history.
Bailey, with her lawyer, has lodged a complaint against Harvard charging racial
discrimination. The reason: Studies show that minorities are more
likely to have bad credit, but credit problems have not been shown to negatively
affect job performance.
Some privacy and minority advocates are now seeing credit as a civil rights
issue as minorities start to fight employers and insurers who base decisions on
credit histories. Their effort could slow the near doubling in credit
checks by employers in the past decade, which impacts millions of Americans who
are struggling with debt.
"It's definitely a civil rights issue because of the growing use of credit
reports and credit scores for hiring, renting an apartment, insurance, and the
fact that people of color have not been integrated into the credit scoring
system as much as traditional, white, middle-class America," says Evan
Hendricks, author of "Credit Scores & Credit Reports: How the System
Really Works, What You Can Do."
In a 2004 study involving 2 million people, the Texas Department of Insurance
found that blacks have an average credit score roughly 10 percent to 35 percent
worse than whites; Hispanics have scores 5 percent to 25 percent worse than
whites.
Credit checks are a growing factor in hiring, with 35 percent of employers
checking applicants' credit in 2003, up from 19 percent in 1996, according to
the Society of Human Resource Management (SHRM). Typically credit reports
are done if a person is going to deal with money, says John Dooney, a manager of
strategic research at SHRM.
A case for considering credit
Employers should look at credit only for jobs where the information is relevant,
says Lester Rosen, president of Employment Screening Resources, a national
background screening firm in California. He cites a few examples:
• For jobs handling money, people may have the motive to steal if their debts
surpass their salary.
• For jobs requiring travel, bad credit could bar applicants from renting cars
or buying tickets.
• For jobs managing money, the report can offer some clues on how applicants
manage their own.
Particularly in that last scenario, he cautions employers to be circumspect
since blemishes might be errors or beyond the person's control, such as sudden
medical expenses. Legally, employers must receive written permission from
applicants to do a credit check, and must give those denied because of credit a
chance to respond.
Mr. Rosen defends the careful consideration of credit in the hiring process.
"If Harvard hired a person and did not use a credit report and the person
embezzled, what would the headline be?" he asks.
So far, there's a lack of data supporting a relationship between bad credit and
theft by employees. In perhaps the only study published on the subject,
Jerry Palmer and Laura Koppes at Eastern Kentucky University in Richmond in 2003
found no correlation between employee credit reports and negative performance or
termination for dishonesty.
Antidiscrimination laws bar a hiring practice that disadvantage minorities -–
even inadvertently -– unless a company can prove it's related to measuring a
person's capability to do a job. Bailey's lawyer, Piper Hoffman, has taken
on several cases in which companies used credit as a factor in the hiring
process. In one 2004 case, she says, an employee's lawsuit against Johnson
& Johnson resulted in a settlement that changed the way the company used credit
in its hiring practices.
"In the larger picture, we're hoping to get Harvard and other employers to stop
using credit as a criterion in hiring," Ms. Hoffman says.
Bailey lodged her complaint in November with the Equal Employment Opportunity
Commission (EEOC), which reviews all such cases before any lawsuits can be
filed. Agency officials say there's anecdotal evidence these cases are on
the rise.
"Employers seem to be assuming that somebody with a poor credit history is more
likely to steal, and I don't think there's any kind of evidence that supports
that," says Dianna Johnston, assistant legal counsel with the EEOC. "To
the extent that the employer has done an in-depth look and found other indices
of dishonesty, they would be on more solid ground."
In a statement, Harvard noted that a "relatively small percentage" of jobs at
the university require a credit check.
"The university conducts credit history reviews for employment purposes as
required by credit card issuers, as well as to fulfill our fiduciary and data
privacy responsibilities," says the statement. "Those responsibilities
include protecting the private credit card data of our students, faculty,
parents, and alumni."
Bailey says that if Harvard was concerned she might steal, the university should
have looked at criminal records instead. "I was a cashier for many years
and I've never been rich and I've never stolen money," she says.
She ran into credit-card debt she couldn't pay back when she spent some time
unemployed. Harvard, she says, offered to reconsider if she could clear up
her report in one week.
"The only way I can get it cleaned up in seven days is if I have money, so there
was no way," says Bailey.
Catch-22 for poor people
Ernest Haffner, an attorney adviser with the EEOC, notes that employers who
screen for credit are setting up a Catch-22 for poor people: They need
jobs to get good credit, but employers won't hire them because they don't have
it.
The racial component to credit histories has been challenged in the insurance
arena, too. The Texas Department of Insurance study found a relationship
between credit scores and claims filed.
However, a class-action lawsuit against Allstate has just been settled, which
resulted in the company changing the way they evaluate credit reports, says
Wendy Harrison, a Phoenix-based lawyer who brought the case.
"What we've argued in our [insurance] cases is that you can adjust for [racial
bias]," Ms. Harrison says, who has also handled cases of credit screening by
employers.
Employers, however, are probably not relying on a number rating that can be
adjusted, since, according to Rosen, agencies only give them specialty reports
that don't include a score. Harvard says their report had no score.
As for Bailey, she still wants the Harvard job, and says there would be "no hard
feelings." But first she wants to change the system for herself and
others. "I hope I win. It might be beneficial to other people, too,"
she says.
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