Amid skyrocketing layoffs and mortgage foreclosures, several states and the federal government are pushing new rules to stop employers from unfairly screening out job applicants who can't pass a credit check.
Five states are considering laws that would restrict credit checks by employers. Stuart Ishimaru, President Obama's acting chairman of the Equal Employment Opportunity Commission (EEOC), is a vocal critic of the checks and has called for the agency to begin issuing guidelines on how such checks should be carried out.
About 43% of U.S. employers check job applicants for overdue payments on anything from mortgages and rent to credit cards and student loans, according to the Society for Human Resource Management and security consultant Kroll. That's up from 36% in 2004, a Kroll survey found.
But the checks are under fire from some lawmakers who say needy and trustworthy people are being shut out of jobs — at a time when the economy is bad and hiring is severely cut back.
"It's almost like being forever sentenced to debtors' prison," said Hawaii state Rep. Marcus Oshiro, a Democrat.
Said Democratic state Rep. Matthew Lesser of Connecticut, "There's an awareness that a lot of people have bad credit for reasons that have nothing to do with their worth as an employee."
Bills by Lesser and Oshiro aim to eliminate many credit checks by requiring employers to prove they are vital to hiring. "Employers do the checks routinely without showing there's any connection to the job," said state lawmaker Michael Benjamin, a New York Democrat, whose bill would restrict credit checks.
Missouri and Texas are considering restrictions. Washington state enacted restrictions in 2007, the year Ishimaru told a government hearing that employee credit checks could violate civil rights law.
Employers most often run credit screening on people seeking jobs with access to money, such as tellers, cashiers and finance officers, New York City employment lawyer Adam Klein said. Post-9/11 security concerns have fueled a growth in the checks. The Transportation Security Administration is considering requiring credit checks for 1 million workers with access to secured areas of airports.
The TSA bars people with $5,000 in overdue debt or any federal or state tax lien from working as airport screeners. That ruled out 22% of applicants from 2005 to 2007, a report found.
Employer credit checks are legal, but can be discriminatory if they disproportionately exclude minorities, women or people over 40 and are not essential to a hiring decision, the EEOC says.
"There are indications they do discriminate on the basis of race, and we are looking into that," EEOC lawyer Dianna Johnston said. A 2007 Freddie Mac study found that 48% of blacks had "bad" credit records compared with 34% of Hispanics and 27% of whites.
Many employers check credit to protect against negligent-hiring lawsuits, said Lester Rosen of Employee Screening Resources, a California firm. But the checks aren't infallible. "A person with credit problems may be a great performer," Rosen said, "because they need the job."