Sen. Elizabeth Warren proposed a bill today that would prevent companies from using credit reports in hiring decisions.
Ever since the Great Depression, many unemployed Americans have struggled to find a job once employers check their credit history. Many of these people fell on hard times after the housing bubble burst or faced an unforeseen medical expenses. Warren argues that since research has shown that an individual’s credit history provides no indication on their job skills or potential, companies should be restricted from using them to evaluate potential employees.
“A negative credit rating is far more often the result of unexpected medical costs, unemployment, economic downturns, or other bad breaks than it is a reflection on an individual’s character or abilities,” she said. “Families have not fully recovered from the 2008 financial crisis, and too many Americans are still searching for jobs. It makes no sense to make it harder for people to get jobs because of a system of credit reporting that has no correlation with job performance and that can be riddled with inaccuracies.”
Warren is correct that this has harmed many Americans looking for employment, but another potentially more worrisome problem with firms using credit reports in hiring decisions is that they use them to discriminate against applicants. For instance, the Department of Labor won a case versus Bank of America in 2010 for its use of credit checks to discriminate against African-Americans for entry-level positions.
If studies showed that credit reports were a good representation of an candidate’s job performance, then Congress would need to crack down on the discriminatory practices without banning the use of credit reviews in hiring decisions. Given that research shows otherwise, Congress can disallow the process altogether and ensure that companies cannot use credit reports as a alternate way to discriminate while also not diminishing companies’ chance to review job applicants.
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