EEOC has been urging companies to take caution in regards to utilizing credit checks in their employment screening decisions. Credit Checks have a potential for discrimination Under Title VII, unless of course there is a legitimate business necessity.

At first this appeared to be a bit shocking, or maybe even a stretch. How could Credit Checks have a potential for adverse impact?

What ultimately was more shocking was the data from a research done in 2004 by the Texas Department of Insurance. The research focused on 2 Million individuals, and found “that blacks have an average credit score roughly 10 percent to 35 percent worse than whites; Hispanics have scores 5 percent to 25 percent worse than whites.”

Freddie Mac study showed, the race-credit correlation is even stronger than the income-credit correlation

What makes this more interesting is that there is no significant proof that Credit Checks will have a negative impact on the performance of employees. Actually one would think that an employee may probably want to work harder, request longer hours, to help compensate their losses.

There also has been no evidence to link theft, fraud or criminal activities to employees with negative credit.

Harvard recently found themselves charged with discrimination due to unnecessary credit check, when a temp employee wanted to change her status to permanent. Harvard decided not to allow the hire after they initiated a credit check. This decision is now being challenged on the grounds of Racial Discrimination.

The grounds for the charge, is that the individual had been performing the same duties as a temp worker as she would have in the permanent role. The Credit check had not been initiated prior to her deciding to go permanent. Harvard explains that it is standard policy for them to Review the Credit background for all employees who will have access to sensitive financial data.

Okay, this makes sense to me. My only question though is why wasn’t it also done for temp employees?

Employment credit checks are widespread, and according to a 2004 Survey by the Society of Human Management Resources, 35 Percent of Companies in 2004 were conducting Credit Reports on potential employees compared to 19 Percent in 1996. A University of
Florida survey conducted in 2002 found that 40.7% of retail employers conducted them for screening purposes.The Harvard Case is not secular, and there are Several Civil Rights groups that are getting involved in this. What could make this even more of a concern for companies is that in February the EEOC recently launched their “E-RACE” (Eradicating Racism and Colorism from Employment) Initiative – and one of the areas of focus will be the selection, hiring and promotion processes of Employers. The E-Race program will include focus on issues that have possible systemic adverse impact by company hiring decisions; These can include employment and personality tests, arrest and Conviction records, names, and of course credit checks.A good rule of thumb – if it isn’t a business necessity, then maybe it should not be a requirement.

Karen Mattonen