Rejecting Applicants Based on Credit May Lead to Litigation
A recent University of Miami job applicant is suing the University after the college rescinded a hiring offer after checking the applicant's credit. This suit is also filed with “other similarly situated” applicants in a class action. Ask any employer who has defended a class action suit. They are expensive to defend, time consuming and can damage an organization’s reputation. (See the suit filed here.)
The applicant’s negative credit history apparently disqualified her from a position as a senior medical collector, although she had previous experience in the finance arena. The candidate has sued the university, citing discrimination. Many believe that denying candidates employment based on credit history discriminates against minorities since unemployment is higher among Blacks and Latinos, and unemployment contributes to an adverse credit history. Additionally, the Federal Reserve Board found in 2007 that credit scores differ “substantially” among minorities. Blacks and Hispanics “on average, have lower credit scores than non-Hispanic whites and Asians,” according to its report entitled, “Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit.” Employment actions like running credit histories can create an adverse impact on candidates, many contend.
Should you consider a hiring candidate’s credit history prior to extending a job offer? Up to 60 percent of employers check a candidate’s credit history either prior to or after extending a job offer, according to a recent Society for Human Resource Management study. Credit history was once integral only to candidates who handled financial transactions. However, more and more businesses feel that how a candidate handles finances is a window into his or her level of maturity and responsibility.
Many candidates who are turned down for employment based on adverse credit reports contend their credit blemishes resulted from a divorce, medical problems or bankruptcy proceeding triggered by the economic downturn. However, many companies do not take personal histories into consideration.
Given the recent economic downturn, some human resources experts have concerns about judging a person’s entire creditworthiness based on the last two years. These recent credit histories may not reflect a person’s normal credit history, Ginny McMinn of McMinn HR in Gilbert, Arizona, believes. She takes a common-sense approach. “If you are considering using employee credit checks in your organization’s hiring process, use some caution,” she recommends. “First, make sure that checking this personal information is related to the job the employee will perform, typically a job where the employee will handle cash or cash equivalents. Second, make sure that you don’t jump to conclusions about an individual’s reliability or trustworthiness based on this one piece of information. After all, many candidates who normally have acceptable credit may have suffered some financial setbacks during the recession and unemployment of the last couple of years.”
If you decide to use credit history as part of your hiring process, take the following steps as outlined by the Federal Trade Commission.
- Obtain the applicant’s written permission before you conduct the screening.
- Before you reject the candidate, provide them with a copy of the adverse report and their rights under the Fair Credit Reporting Act (see link here).
- After you reject the candidate, you must furnish them with an “adverse action notice,” which provides the contact information for the organization that conducted the screening. You must also state that you made the decision, not the screening organization. You must also notify the applicant of their rights to dispute the report.
Before you begin checking credit, consult with your labor attorney or work with a human resources consultant familiar with this process to ensure you do so lawfully. Next, consider whether you want to check credit on each individual you hire. If they do not handle financial transactions on your company’s behalf, could you eliminate the credit check as part of your background check?
Another safer approach may be to obtain the credit check and discuss any adverse results with the candidate prior to rejecting them. Much like a prior arrest, many employers review criminal histories but do not necessarily eliminate candidates with a few minor convictions on their record.
Each person has a story and most are eager to tell theirs. Discussing an adverse credit history with an applicant allows them to tell their version. You may decide not hire them, but at least they had the chance to tell you their side of the story. This may help prevent costly litigation.
