LegalZoom Blog

Legal news and small business tips.

Using Credit Reports in Hiring May Soon Be Illegal

with 10 comments

Easy Credit by AlphaTangoBravo / Adam Baker on Flickr

Photo by AlphaTangoBravo / Adam Baker on Flickr

Do you run credit checks on potential employees? Or, as a potential employee, have you been asked for permission to run your credit report when applying for a job?

As reported in The New York Times, the legal use of credit reports in hiring may soon be a thing of the past; three states (Hawai’i, Washington, and Oregon) have already passed laws outlawing the practice, and at least twelve others are following suit.

Moreover, Representative Steve Cohen, a Democrat from Tennessee, is trying to get the federal Fair Credit Reporting Act amended to stop hiring discrimination based on credit reports.

On one hand, employers argue that credit reports help them weed out individuals who may end up harming their businesses. The NY Times notes that employee theft accounts for more than $30 million in losses for retailers every year.

But can credit checks really stop this damage from happening?

Even Eric Rosenberg of the TransUnion credit bureau can’t say that for sure. At hearings on Oregon’s proposed law earlier this year, Rosenberg stated, “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.”

Indeed, no research has shown any link just yet, according to The NY Times.

Or, put in real-world terms: “Bernie Madoff had a pretty good credit score,” said Matthew Lesser, a state representative from Connecticut who has proposed a law forbidding the use of credit reports in hiring in his home state.

This issue is especially controversial now as millions of Americans are staring at not-so-good credit scores after being hit hard by one of the worst recessions in history. Proponents of outlawing the use of credit reports in hiring also say that among those adversely affected by the process include minorities and people who have suffered layoffs and/or crippling medical debts.

What do you think? Should employers be allowed to run credit checks on potential employees and then base employment decisions on the results?

ShareShare on FacebookTweet about this on TwitterShare on Google+Share on LinkedInEmail this to someone

Sign up for the LegalZoom newsletter!

Written by

April 13th, 2010 at 6:24 am