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EEOC Turning Up the Heat on Credit Checks for Applicants!

The Equal Employment Opportunity Commission (EEOC) is turning up the heat on the use of credit histories in the hiring process.  The EEOC’s primary concern is that minority groups typically have poorer credit, and therefore the practice has a disparate impact on those groups. There is also a question of whether credit histories have any real predictive value when it comes to employment.

Congress is also honed in on the issue. In 2009, the Equal Opportunity for All Act was introduced in the House. This bill would prohibit an employer from using information regarding a person’s credit history or credit worthiness in employment decisions, with some exceptions.  In September 2010, hearings were held by the House Subcommittee on Financial Institutions and Consumer Credit.

On December 21, 2010, the EEOC filed suit against Kaplan Higher Education, alleging that Kaplan’s use of credit history as a selection device is discriminatory because it screens out a disproportionate number of black applicants. In a disparate impact suit like the one filed against Kaplan, the employer may have to show that the selection criteria is “job-related” and “consistent with business
necessity,” and that there are no less discriminatory alternatives available. The
lawsuit seeks both injunctive relief barring Kaplan from using credit histories
and lost wages, benefits and offers of employment for applicants who were not
hired due to the practice.

Employers should re-evaluate their use of credit histories in the application process in light of the EEOC’s apparent position and potential legislation restricting the practice.  An organization that utilizes a broad approach which uses credit checks for all applicants presents the greatest risk of a disproportionate impact claim, and it will be the most difficult to successfully defend. For that reason, employers should limit the review of credit history to positions where there is a strong nexus between a person’s credit history and the position for which he or she is applying. The most obvious examples are positions involving direct access to the employer’s or client’s funds, particularly for individuals in higher level positions such as a controller or store manager. Although such a limitation will likely make a lawsuit easier to defend, it may not be sufficient to avoid being sued.

Finally, businesses should avoid making credit the determinative factor in denying employment.  Information dealing with creditworthiness should be used to supplement the other information gathered throughout the interview and reference checking process. And clearly, all credit checks should be conducted in accordance with the requirements of the Fair Credit Reporting Act and similar state laws.

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