Elizabeth Warren to Outlaw Credit Checks for Job Applicants

Elizabeth_Warren_CFPBSen. Elizabeth Warren has introduced a bill which would make it unlawful for potential employers to carry out credit checks as part of the hiring process, creating a precedent that may strongly influence US law on the matter.

Her legislative initiative is co-sponsored by six fellow Democratic senators and according to Warren, also has the support of more than 40 organizations troubled by the issue. At the heart of Warren’s bill is a concern that job-seekers who have suffered from the ravages of the economic downturn during the last few years and have fallen into financial difficulties are being discriminated against, lessening their chances of employment. A press release from Warren said, “This is about basic fairness — let people compete on the merits, not on whether they already have enough money to pay all their bills.”

Warren added that the credit checks, which research indicates 47% of employers now use when making a hiring decision, favour the financially stable and leave those who need employment the most at a distinct disadvantage. In effect, she said, job-seekers are in danger of being discriminated against simply because they may have fallen into financial difficulty due to a job loss, divorce or family bereavement.

However, Warren’s bill has met criticism from the credit-reporting industry. Major credit bureaus in the United States and UK such as Equifax and Experian are licensed to sell credit information to potential lenders and employers. Norm Magnuson, the Vice President for Public Affairs for the Consumer Data Industry Association, the professional body which represents credit bureaus pointed out that an employer must obtain permission from an applicant before reviewing a credit report and the applicant must be informed if they were denied employment due to information contained in the report. He also commented that although credit reports contain detailed information, they do not include a credit score itself and so this already plays no part in the hiring process.

Image compliments of pakorn at freedigitalphotos.net
Currently, employers can use credit checks to evaluate applicants.
Image compliments of pakorn at freedigitalphotos.net

There are also questions over exactly how much weight an employer can and should give towards a credit report. For example, Magnuson argues that employers are not interested in whether a job-seeker has failed to pay credit cards bills on time and are more concerned over whether an individual has been declared bankrupt in the past or if they have been previously censured in court. Some believe that these are important factors which a prospective employer has every right to take into consideration.

However, Warren is adamant that her proposed bill will help families who “have not fully recovered from the 2008 financial crisis.” Rep. Steve Cohen (D-TN) attempted to introduce similar legislation in 2012. Meanwhile, ten states have banned the use of credit scores in recruitment already with Nevada the latest to do so in June 2013. New Jersey appears well on the way to following suit in the near future. However, the think tank Demos has said that these state laws are not watertight and that federal legislation could prove to be more effective. Warren’s bill is likely to continue to cause controversy with critics labeling it a populist measure rather than a question of equality.

What are your thoughts on employers checking credit ratings? Tell us below!

About Ronnie E.

Ronnie is the frugal Latina of the group. Hailing from the beautiful Andes Mountains in Bolivia, she lives and breathes frugality. She loves to figure out how to spend less money and takes on the challenge of finding great deals and cheaper options every day.

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