Credit Checks Are Discriminatory. Time to End Them!

David R. Jones, The Urban Agenda

Tomorrow the New York City Council will hold a public hearing on a bill that would ban employers from using personal credit history to make hiring and promotion decisions. If there was ever a piece of common-sense legislation, this is it.

The Council’s “Stop Credit Discrimination in Employment Act” seeks to remove a chief obstacle to employment for many people who have fallen behind on their bills because -- you guessed it -- they are unemployed. Sadly, in their effort to find work so that they can get back on track economically, their poor credit rating works against them.

A coalition of community, civil rights and labor groups have mobilized to raise public awareness about the harmful effects of employer credit checks. This practice disproportionately impacts low-income New Yorkers and communities of color who are more likely to have low credit ratings. It also hurts the job prospects of college graduates who are struggling to pay off student loans.

Minorities Especially Vulnerable to Poor Credit

Negative credit history often comes from medical debt, divorce, or unemployment, all of which are more prevalent in communities of color. According to our annual Unheard Third survey, 23 percent of low-income respondents in the city reported having debt due to medical bills.

The Great Recession claimed the jobs of thousands of New Yorkers and millions of Americans, including people who assumed they were economically secure. As a consequence, many ended up losing their savings, retirement accounts and falling behind on mortgage payments making them prime candidates for negative credit ratings. Black and Latino families were especially vulnerable to poor credit in the aftermath of the housing bubble since they were the main targets of predatory lenders peddling subprime loans.

It’s hard to rationalize giving employers a proxy to deny jobs to people who want to work and who come from communities with the highest unemployment rates. Equally troubling is using this practice as a barrier to employment for young job-seekers emerging from college or graduate school steeped in debt. In 2013, the average college student graduated with $35,200 in student loan, credit card and other college-related debt.  Imagine already being saddled with thousands in student debt only to be told by a prospective employer that you are being denied an equal shot at a job that could help you pay off that debt.

Credit Discrimination Bans Around the Country

The bill poised to come out of the Council on Friday is not the first restricting the use of credit history in hiring. According to Demos, a national public policy research organization committed to reducing economic disparities and one of the lead advocates for credit check legislation, ten states and dozens of municipalities have laws on the books prohibiting employers from using personal credit information in making employment decisions. Several others are currently considering legislation. Last year, the New York State Assembly passed the Credit Privacy in Employment Act (A7056), but that bill died in the Senate in January 2014.   Unlike many laws restricting employment credit checks, the New York City bill avoids the kind of loopholes or industry carve-outs that weaken legislation and lead to the creation of two-tier employment tracks along the lines of race and class.

Ignoring the Critics

The Council bill has drawn wide support with more than 40 members signed on as co-sponsors. With its “supermajority” status, the bill is expected to easily be voted out of the Civil Rights Committee on Friday, the first step in scheduling a full vote by the Council later this year.

That said, Friday’s hearing will offer an opportunity for opponents of the bill to be heard. In this case, credit reporting agencies, business groups and employer associations will argue that some specific job positions warrant employment credit checks to protect employers from fraud and theft. The premise here is that reviewing personal credit information is an effective way of predicting job performance, as well as screening out employees who may steal or commit fraud.  Of course there is no evidence backing up these notions.

A Demos report last spring noted that nearly half of U.S. employers utilize credit checks to screen job applicants. A big reason for that is the for-profit credit reporting companies themselves, who have invested heavily in marketing their credit reports to employers. Conversely, there seems to be little concern in how their practices hurt people who have damaged credit, and are struggling to find work so they can meet their financial obligations.

With unemployment in minority communities still at elevated levels, it’s more important than ever that we remove pernicious and unjustified barriers to employment. And it is important to understand just how difficult it is for low-income families to remain in good financial standing after the loss of a job.   Of low-income New Yorkers in households where someone lost a job in the past year, 39 percent had no savings and 65 percent had less than $500 in savings.  It is not surprising that someone in that predicament would see their credit rating decline.  No employer should be allowed to use an applicant’s economic difficulties against them as they try to get back on track.   

Issues Covered

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