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Statement of Michael Eastman Executive Director Labor Law Policy US. Chamber of Commerce

Meeting of October 20, 2010 - Employer Use of Credit History as a Screening Tool

Chair Berrien and Members of the Commission, my name is Michael Eastman and I am executive director of labor law policy at the United States Chamber of Commerce. The Chamber is the world?s largest business federation, representing the interests of more than three million businesses and organizations of every size, sector, and region.

Thank you for the invitation to discuss background checks that examine the use of employee credit history. Employer use of background investigations is an issue that I have worked on periodically over the past 10 years, although most of that work was related to employment misconduct investigations in the context of the Fair Credit Reporting Act (FCRA).

My sense in observing the debate over the appropriate use of employee credit history by employers is that there is a lack of information regarding what credit information employers use, when they collect it, and the process that is used to make an employment decision based on credit history. For this reason, in preparation for today?s meeting I have spoken with many Chamber members to learn if they use employee credit history and if so how. I hope that sharing this information with you can assist you as you consider the difficult legal and practical questions surrounding this matter.

Background checks generally

Background checks are an essential employment screening tool. However, the components of a background check may vary widely depending on the employer and the position sought. For example, a background check may be as simple as contacting an applicant?s listed references or it may include other components such as verifying an applicant has degrees, certifications, or clearances he or she claims, and may include criminal and credit history checks, among other things.

Employers conduct background checks on applicants for any number of reasons. They can help an employer create a more complete picture of the applicant in order to determine which of several applicants is the best fit for the job. Employers also conduct background checks to confirm information proffered by the applicant. I doubt that I am the first one to suggest that occasionally applicants stretch the truth on resumes and applications.

Depending on the position sought, and in particular whether the position entails significant contact with to the public, access to personal or financial information of customers or even access to controlled substances, appropriate background checks may be a necessity. They may also conduct background checks to help protect themselves from claims of negligent hiring and to protect themselves from other potential liability.

Frequency of use

You will hear later about various studies that have attempted to determine how many employers use employee credit history and, when they do, they percentage of the workforce that may have credit history examined. My research in this area is admittedly anecdotal. However, my discussions with Chamber members surprised me in a few ways that I think you may find interesting. First, I was somewhat skeptical of survey information indicating that many employers do not utilize credit history ? I assumed that the largest employers in the U.S. would utilize credit history information at least with respect to some employees. However, I was mistaken. In fact some of the largest employers in the United States told me that, while they reserve the right to look at credit history, they currently do not look at credit history for any of their employees.

For employers that do utilize credit history information, I have not spoken to any that use credit history for the entire workforce or even a majority of the workforce, absent a legal requirement to do so. A typical example is a company I spoke with in the insurance services industry. This company employs approximately 5,000 employees in the United States and includes credit history as a component of the background check for approximately 100 of those employees with either direct access to the company?s or its client?s funds. This company has experience with former employees embezzling client funds and it believes examining credit history is one important tool in making hiring decisions for those positions.

Interestingly, this company also told me that they anticipate reducing the number of positions for which they examine credit history because of advances in technology that will make it more difficult for employees with access to client funds to embezzle.

However, as I noted, employers do utilize credit history checks for certain positions. In addition to utilizing credit history for employees with direct access to company or client funds, employers examine credit history for employees with access to sensitive information. This can include human resource functions, where employees have access to Social Security Numbers, banking information, and other personal data of co-workers, or those with access to client and customer credit card or account information. It also includes employees that may have access to trade secrets and other confidential company information.

When are credit checks conducted in the employment process

Different components of applicant background checks occur at different stages in the hiring process. Some employers may check references before an initial interview, some may do so afterward but before creating a final list of candidates. However, as I understand, most employers do not request credit history until the last stage of the hiring process. In other words, employers are not using credit history to compare the credit worthiness of several possible applicants. Instead, they are requesting credit history and potentially other information, on individuals that they are otherwise prepared to hire.

Credit scores and information utilized

Another common misperception is that employers consider credit scores when examining credit history. Simply put, I have found no employer that considers credit scores. It is my understanding that employers typically do not even receive credit scores as part of the credit report.

It is important to emphasize that the factors that would go into an employment decision based on a credit report can differ rather significantly from the factors that would go into a decision to lend credit. A credit score of 550 or 700 may convey important information to potential lenders, but the number, standing by itself, is meaningless to employers. As an example, consider bankruptcy. Bankruptcy may be an important factor for a financial institution considering whether to lend an individual money or what rate to set, but it is generally not considered for employment purposes.

Also, not all debt is created equal in the minds of employers. The circumstances under which an $80,000 debt in collection arose may be irrelevant to a credit score, but to an employer the circumstances matter a great deal. It is my experience that employers are much less likely to be concerned with debt that arose as a result of a medical issue, a period of unemployment, or a divorce. On the other end of the spectrum, some types of debt might raise red flags more quickly, such as gambling debt.

This example is not a hypothetical. One employer told me that after they suspected an employee of stealing client funds, an investigation revealed the employee had significant gambling debt. Had the employer in this case conducted a credit check before hiring the individual, they would have learned about this debt and could have considered this information before placing this individual in a position with direct access to client funds.

Additional information on a credit report might indicate that although an individual has outstanding debt, that they are working to resolve the matter. There may be evidence that they have attempted to consolidate or pay back debt. This type of positive information would be considered in addition to any negative information.

It is important to emphasize, however, that employers do not typically rely on a credit report standing alone in making an employment decision. To the contrary, rather than serve as an immediate disqualifier, employers generally treat issues raised in a credit report as issues that require further investigation.

Credit reports also include useful information for employers that have no bearing on a credit score, such as an indication of where the applicant worked previously. Many employers cross check this information with an applicant?s resume and application for employment to see if there is a discrepancy. If so, this may warrant a follow-up question to the applicant or to the prior employer. Perhaps there is a legitimate reason for the discrepancy, but perhaps the prior employment ended badly under circumstances that call into question the fitness of the applicant for the job to which he or she has applied.

Dialogue with Applicants

The Fair Credit Reporting Act (FCRA) grants various protections to employees should an employer utilize credit history in their decision not to hire an individual. All of the employers I spoke with follow the requirements of FCRA.

In addition, most employers have a practice of not relying solely on information contained in the credit report, but instead conduct follow-up investigations or discuss the matter with an applicant. In other words, applicants have an opportunity to discuss potential concerns with the employer before a decision is made.

Can credit history ever be job related?

Many have asked whether credit history can ever be job related. The federal government has answered this question in the affirmative, at least with respect to its own employees. A look at the federal government?s policies in this area is informative.

A report from the Department of Homeland Security notes ?an initial suitability determination includes a preliminary check of credit, name, address, education, and fingerprints to establish whether the applicant can perform the duties without compromising national security or public trust.1

DHS also states ?there may be adverse elements in an individual?s past conduct that would not be relevant to the federal position to which the individual is applying. Incidents of previous bad conduct, such as driving while intoxicated, possessing or using marijuana, or experiencing indebtedness, do not automatically disqualify an applicant for federal employment. These types of incidents may be assessed to determine whether they are sufficient in nature and gravity to result in an unsuitable determination for federal employment in a particular position.2

With respect to credit, DHS does include financial irresponsibility as a conduct issue that could render an individual unsuitable. It notes that the standards of ethical conduct for employees of the executive branch states that... employees shall satisfy in good faith their obligations as citizens, including all just financial obligations... especially those such as federal, state, or local taxes... that are imposed by law.3 DHS also observes that

Life events such as divorce or serious medical conditions that resulted in the accumulation of bad debt can be mitigated. Adjudicators are looking for a demonstrated intent by the selectee to rectify the debt. If the effort is not evident, an adjudicator can determine the selectee to be unsuitable strictly on the presence of the bad debt. The decision is based on the level of risk to national security and possibility that the selectee could be blackmailed or tempted to engage in illegal acts to generate funds.4

The government also provides for periodic review of employment suitability, noting ?continuous reevaluation of individuals employed by the federal government ensures that only the most qualified and trustworthy individuals remain employed.5

I offer these excerpts because the government's rationale does not seem so different from the private sector employers I have spoken with who consider credit history. The possibility of an individual being blackmailed or tempted to engage in illegal acts differs little between private sector and government employees. For some positions in the private sector, the risk to national security could also be great and certainly the risk to sensitive information and property can be great as well.


Thank you very much for the opportunity to discuss these important issues with you today. If the Chamber of its members can be of further assistance to you as you consider important issues such as this, please do not hesitate to contact me.


1Department of Homeland Security, office of Inspector General, The DHS Personnel Security Process at 5 (May 2009), available at:

2 Id. (emphasis in original).

3 Id. at 21 (citing 5 C.F.R §2635).

4 Id.

5 Id. at 7.