EEOC Takes Aim at Employment Credit Reports

Recently, our government’s ability to keep secrets has been put to the test. Insider leaks to the press about confidential programs designed to make us safer are frustrating to say the least. But, there is one nasty secret that I am glad was leaked. This May, the EEOC tipped its hand on its intent to intrude on your ability to screen employees by taking a more aggressive stance against the use of credit reports in the applicant screening process. This, partially driven by EEOC’s realization that the use of credit reports to help screen applicants is at an all time high.

Where’s the beef? It lies in the fact that certain minority groups (particularly black Americans) tend to have lower credit scores than non minorities. The lower credit scores are driven by the higher rate amongst minorities of bankruptcies, collection accounts, credit defaults, and other issues that appear on a credit report - as well as the lower credit value given to certain job categories often held by minority job applicants. In other words, credit reports by their very nature have a racially disparate impact.

If you use credit reports as part of your employment screening process, here are some important things to remember:

• Use “Employment Credit Reports” to screen applicants. Employment credit reports do not show the applicant’s credit score or account numbers. They are specially designed to meet FCRA standards for the use of credit reports in employment screening.

• Avoid developing hard rules, standards, or numeric guidelines for screening out applicants based upon the information contained in the credit report (e.g. a certain number of collection accounts, or charged off accounts will automatically negate consideration). Some believe that by applying a consistent standard to all applicants that they have developed a fair policy. Not so, says the EEOC! Racially “neutral” employment policies may run afoul of Title VII of the Civil Rights Act.

• Make sure that the use of the credit report is closely related (“job relatedness”) to the position applied for. For example, you may be able to show a nexus between a credit report and an Accounting Manager but not between a credit report and a Customer Service Manager. A cashier may handle each dollar that goes into your coffer but the Office Manager who handles your deposit may be more of a theft risk than the cashier. Since there is a correlation between income level and “bad” credit (and race and bad credit), you will have an impossible time justifying the use of a credit report for positions like "cashier", "clerk", "associate", "representitive", or other similar hourly paid jobs.

• Reserve credit reports for management level candidates such as: Manager, Director, Vice president, etc.; then, only for positions in which the employee has unusual power over company accounts or funds. Positions for which history shows a higher incidence of bribes, kickbacks or other forms of inappropriate influence should be considered (such as procurement; real estate; advertising; etc.).

• Document, in writing, your reason for using a credit report for a particular position. The process of reasoning through each justification will help identify positions for which credit reports should not be used.

• Be familiar with the FCRA requirements regarding the use of consumer reports. Realize that credit reports may contain inaccuracies. If you are going to deny employment based wholly or partially on the information contained in a credit report, you must provide an adverse action letter. An applicant has specific rights under the FCRA that you must be aware of and comply with.

Again, the key to using credit reports safely and effectively is to be able to justify their use by showing “job relatedness”. But be careful. The EEOC states that they have seen no study, to date, that shows a connection between credit reports and any job, at any level. Notwithstanding, during a recent meeting in May the EEOC concluded that they cannot absolutely say that there is never a link between credit any employment worthiness.

There is much to be derived from the proper use of credit reports in employment screening. Often employers can discover court ordered judgments, restitution agreements, or other actions relative to previous employers that may point to past dishonesty. By adopting a policy that allows credit reports to be considered and weighed on an individual basis and in conjunction with all other information gathered during the interview and background investigation process you will be on you way to hardening you employment screening against attack. Use the credit header report (a.k.a. Social Security Number search) in all cases in which a full employment credit report cannot be justified. As always, Asset Control will keep our clients updated on decisions and trends that impact you in your effort to hire the best employees!