NYC Fights Employment Discrimination Based on Credit History

by Brian Kotkin

Employers have increasingly adopted the practice of using credit reports in their determination of whether to hire prospective employees. In response to this practice, the New York City Council has proposed a bill that would ban the use of credit reports by employers for hiring and firing within the city limits, except where mandated by state or federal law.[1] Similar policies have been enacted in ten states, as well as in the city of Chicago,[2] in response to the growth and impact of this practice.

Employers are authorized to request credit reports from their employees under the Fair Credit Reporting Act,[3] which explicitly allows companies to request a credit report for “employment purposes,”[4] defined as “a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.”[5] A credit report requires prior authorization from the person whose credit report is being requested, and cannot technically be compelled[6].

However, an employer may make a credit check a prerequisite for employment, even though a prospective employee may technically refuse to authorize a credit check.[7] Considering that one’s credit report is negatively impacted by past financial difficulties, it raises the prospect that an individual will become effectively unemployable—a lack of income results in difficulty paying bills, which negatively impacts their credit rating, which in turn makes it more difficult to get a better job to help pay bills.

Moreover, this sort of policy will necessarily have a disproportionate impact on certain groups. Women still only make 78 cents for every dollar that men make,[8] and thus tend to have greater economic problems than men. The wealth gap between African-Americans and white Americans nearly tripled between 1984 and 2009, largely as results of a lack of home ownership, of employment, and of advanced education.[9] This disparity in economic status is likely to be reflected in their credit histories, and may result in de facto discrimination against traditionally suspect classes, such as women or African-Americans.

The argument that employers make when using this practice is that it enables them to root out “theft, fraud or dishonesty if and when it arises,”[10] thus allowing them to ensure their employees are trustworthy. However, credit reports can reveal an extraordinary amount of highly sensitive information about someone, including late bills, available credit, rent payments, liens, judgments, and bankruptcies[11]—a great deal of which has nothing to do with one’s trustworthiness, but which an employer may nonetheless use to make judgments about hiring and firing. For example, it is difficult to imagine why an employer would need to know if an employee was late with his or her rent or car payments, or other such similar information.

Should this bill pass into law, it will continue a growing trend of opposing the use of credit reports in employment. This will protect workers from undue discrimination, allowing them to truly be judged on the basis of their qualifications, rather than their economic status.

[1]    Karen Matthews, NYC Bill Would Ban Credit Checks in Hiring, Firing, Miami Herald (Sept. 12, 2014), available at http://www.miamiherald.com/2014/09/12/4344323/nyc-bill-would-ban-credit-checks.html.

[2]    Id.

[3]    15 U.S.C. § 1681b (2012).

[4]    Id. at § 1681b(a)(3)(B).

[5]    15 U.S.C. (2012) § 1681a(h).

[6]    Kelchner v. Sycamore Manor Health Center, 135 F. App’x. 499 (M.D. Pa. 2005).

[7]    Id.

[8]    Alison Perlberg, Shortchanged: Women and the Wealth Gap, The Clayman Institute for Gender Research (April 4, 2011), available at http://gender.stanford.edu/news/2011/shortchanged-women-and-wealth-gap.

[9]    Thomas Shapiro, Tatjana Meschede & Sam Osoro. The Roots of the Widening Wealth Gap: Explaining the Black-White Economic Divide, Institute on Assets and Social Policy (Feb. 2013), http://iasp.brandeis.edu/pdfs/Author/shapiro-thomas-m/racialwealthgapbrief.pdf.

[10]   Kelchner, supra note 6 at 500.

[11]   What is a Credit Report? Consumer Finance Protection Bureau (Feb. 2, 2014), http://www.consumerfinance.gov/askcfpb/309/what-is-a-credit-report.html.

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