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

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


STUART J. ISHIMARU, Commissioner
CHAI R. FELDBLUM, Commissioner
VICTORIA A. LIPNIC, Commissioner


P. DAVID LOPEZ, General Counsel
PEGGY R. MASTROIANNI, Associate Legal Counsel

This transcript was produced from video tapes provided by the Equal Employment Opportunity Commission.


Agenda Open Session

Announcement of Notation Votes

Employer Use of Credit History
as a Screening Tool

Panel 1: The Fair Credit Reporting
Act: Employer and Employee Rights
and Responsibilities

Maneesha Mithal, Associate
Director, Division of Privacy
and Identity Protection, Federal
Trade Commission, Bureau of
Consumer Protection

Panel 2: Stakeholder Perspectives I
Michael Eastman, Executive
Director, Labor Law Policy,
US. Chamber of Commerce

Chi Chi Wu, Esq., National
Consumer Law Center

Dr. Avis Jones-DeWeever,
Executive Director, National
Council of Negro Women

Panel 3: Stakeholder Perspectives II

Sarah Crawford, Esq., Lawyers
Committee for Civil Rights
Under Law

Christine V. Walters, MAS, JD,
SPHR, Society for Human Resource

Pamela Quigley Devata, Esq.
Seyfarth Shaw, LLP

Panel 4: Review of Scientific
Research: Are Credit Scores a Valid
Predictor of Job Performance?

Dr. Michael Aamodt, DCI Consulting
Dr. Richard Tonowski, Chief
Psychologist, EEOC


CHAIR BERRIEN: Good morning, everyone. This meeting of the Equal Employment Opportunity Commission will come to order. First of all, I would like to thank everyone for being here this morning. In accordance with the Sunshine Act, today's meeting is open to public observation of the Commission's deliberations and voting.

However, before we move to the published agenda for the day, I would like to ask everyone present to pause for a moment of silence in honor of former EEOC Commissioner, Paul Steven Miller, who we learned yesterday, had passed.

(Moment of silence.)

Thank you. Commissioner Miller served from 1994 to 2004 and was an immensely respected colleague to many people within and outside of the EEOC. Many have entered this meeting including my colleagues on the Commission today with heavy hearts but also with indelible memories of Commissioner Miller's service to the nation as a member of this Commission and as an academic and as an undying advocate for and tireless advocate for equality and justice in the workplace.

We have great appreciation for the contributions that he made during his tenure with the EEOC and know that he will be tremendously missed by his family, by his many friends across the country, all of whom are foremost in our thoughts and prayers this morning. I trust that throughout the day you may hear from my colleagues on the Commission as well concerning this very recent and very unfortunate news.

At this time, we'll return to the published agenda and I will ask Bernadette Wilson from the Office of the Executive Secretariat of the Commission to announce any notation votes that have taken place since our last Commission meeting.

Ms. Wilson?

MS. WILSON: Good morning and before I begin I'd like to ask if there is anyone in need of interpreter services?

(No verbal response.)

Good morning. And allow me to personally welcome to EEOC for the record of their first open meeting, Madam Chair Berrien, Commissioners Feldblum and Lipnic and General Counsel Lopez. And good morning to Commissioners Ishimaru and Barker and also to our Associate Legal Counsel, Peggy Mastroianni. I'm Bernadette Wilson from the Executive Secretariat.

We'd like to remind our audience that questions and comments from the audience are not permitted during the meeting. And we ask that you carry on any conversations outside the meeting room, departing and reentering as quietly as possible. Also please take this opportunity to turn your cell phones off or to vibrate mode.

I would also like to remind the audience that in case of emergency, there are exit doors to the right and left as you exit this room. Additionally, the restrooms are down the hall to the right and left of the elevators.

During the period July 15, 2009 through October 15, 2010, the Commission acted on 57 items by notation vote:

Approved litigation on five cases;

Approved Amicus Participation in five cases; and Disapproved Participation in one case;

Approved revisions to the Compliance Manual Section on threshold issues to conform to the Lilly Ledbetter Fair Pay Act;

Approved an interagency agreement to obtain PACER services; and two interagency agreements for Headquarters Health Unit Services; Approved sole-source interagency agreements for an automated time and attendance system and electronic official personnel file system; Approved a noncompetitive firm fixed price interagency agreement with the U.S. Census Bureau; and Approved an interagency agreement with the Department of Education to streamline and automate federal sector data collection processing;

Approved a competitive, firm fixed-price GSA schedule contract for end-user computing support; Approved network modernization and optimization consulting services; Approved renewal of LexisNexis and Westlaw contracts; Approved processing the EEO-3 and EEO-5 and notification letters for EEO-1, EEO-3 and EEO-5; Approved a pay data collection study; Approved a task order to manage the Workers Compensation Program;

Approved revised Sunshine Act Regulations; Approved amending EEOC's Procedural Regulations to include Genetic Information Nondiscrimination Act of 2008; and Approved coordination with the Office of Management and Budget of Final Regulations under GINA;

Approved federal sector decisions in Gryder v. Department of Transportation; Bitsas v. State Department; and Linehan v. Marion County Coroner's Office; and Disapproved a motion for Stay of Execution of the Commission's decision in Linehan v. Marion County Coroner's Office;

Approved regulatory agendas for fall 2009 and for spring and fall 2010;

Approved Notices of Proposed Rulemaking to implement the ADA Amendments Act; for Reasonable Factors Other Than Age under the ADEA and the federal sector regulations at 29 CFR Part 1614;

Approved resolutions honoring Vincent Monico, Danny Harter; Stephen J. Hunt; Mark Wong; and Richard V. Roscio on their retirement;

Approved an expert services contract for a litigation case; Modification of an expert services contract for litigation against Bloomberg L.P.; and a noncompetitive contract for continued labor economist services for EEOC v. Walmart;

Approved contracts for the publication storage and distribution center; Design, graphics and production services; the Daily Labor Report and CyberFEDS subscriptions; the Headquarters facilities and support services; and a settlement fund claims administrator;

Approved FY 2010 budget allocations for state and local programs;

Approved FY 2010 information technology acquisitions for enterprise applications and enterprise operations; and recurring information technology acquisitions and new enterprise backup solution;

Approved a Subpoena Determination in Ford Motor Company;

Approved a temporary delegation of Commission authority during the loss of quorum period; and Approved a ratification of Commission actions taken during loss of quorum period.

CHAIR BERRIEN: Thank you, Ms. Wilson.

Once again, good morning and welcome to all who are here in person at the meeting and also to those who are streaming this meeting through the benefits of technology. As Ms. Wilson noted, this is the first meeting, open meeting, of the Commission with its new membership and quorum and it is a delight to serve as the Chair of the Commission at this time.

And I say thank you to all of my colleagues on the Commission. While we have not met in an open session before today, we certainly have been working closely and well together over the last six months. And I look forward to many more opportunities to work with all of the members of the Commission, the staff of the EEOC and our General Counsel.

I'm looking forward to a very informative meeting and discussion today, and begin by thanking our distinguished guest panelists, some of whom have traveled from across the country to be here. But whether you've traveled from across the country or across the city to be here, we recognize that you have taken your time to join us today. You've taken time in preparation for this meeting. And we are very much appreciative of your willingness to share your expertise with the Commission as we consider the issues that will be addressed today.

I'd also like to thank and acknowledge all Commission staff members who have worked diligently in preparation for this meeting and are even now working to ensure that things go smoothly and that everyone is comfortable as we gather today.

It's particularly timely to have this discussion now. As we all know, the recession and accompanying job loss has caused an increasing number of people to enter or re-enter the job market. Some job applicants are in the job market for the first time in many years.

As an increasing number of men and women across the country have returned to or hope to return to the job market or to enter it for the first time, they're also being exposed to employment screening tools, practices or devices that may be unfamiliar to them. It could affect their prospects for getting a job in unforeseen and potentially negative ways and are generally encountering a range of issues that could prevent them from obtaining employment or from progressing in the workforce.

As the nation's leading enforcer of federal laws prohibiting employment discrimination, the EEOC's ultimate concern is whether these screening practices, devices or tools deny equal employment opportunity to any workers in the country and are keeping qualified and capable people from entering the workplace for unfair reasons.

Today we will be discussing the use of credit checks in the hiring process and this meeting will be the first in a series of meetings examining practices that may create discriminatory barriers for job seekers and unfairly screen out qualified workers. There are several reasons to give special attention to the use of credit checks as a screening tool.

First, at a time when the nation's economic difficulties have spurred an increase in the number of job applicants, the use of credit checks in the hiring process has also increased. As you will hear later today, the Society of Human Resource Management has studied this practice and has reported that 35 percent of its employer members use credit checks as a screening tool in 2001. But now approximately 60 percent of these employers use credit reports in the hiring process in some way. The use of credit checks has grown and at the same time questions have emerged about the fairness of the practice, whether the results of the credit check correlate to job performance and whether there are any adverse impacts.

Second, we are becoming increasingly aware of the practice's potential discriminatory impact on workers and job applicants. As economic hardship spreads and the potential of adverse credit history grows, use of credit reports for hiring, promotion or retention decisions could adversely affect employment opportunities for a wide range of applicants and workers.

While consideration of this issue is especially timely in the current economic climate, this is not the first time the Equal Employment Opportunity Commission has addressed the issue. For years, this Agency has been monitoring the use of credit checks in hiring and promotion decisions.

Recently, in May 2007, the Commission held a meeting on employment testing and screening which included a discussion of credit checks. Following that meeting, the Agency issued a factsheet on employment tests and selection procedures which includes information on the use of credit checks. In recent years, we have seen an increase in the number of charges filed with the EEOC that have referenced the use of credit checks in the hiring process.

These issues are now before us and we have an opportunity today to hear from people across a spectrum of interests, who represent both employers and employees and who can also share information with the Commission about available social science and research concerning the use of credit checks in the employment selection process and hiring process.

This Agency has provided important leadership on this issue in the past. And today is an opportunity for the Agency to continue that work with renewed focus and energy as part of a broader examination of employment barriers that might exclude people from the workplace in ways that violate federal law.

It is indeed appropriate and timely for the Commission to conduct a deeper examination of the use of credit checks, employer and employee rights and responsibilities in this area and what the social science and policy research shows regarding the efficacy of using this tool. We recognize that employers have a tremendous interest in hiring and selecting qualified employees who are able to do the jobs for which they have been hired.

Today is an opportunity to examine the use of credit checks specifically or credit history as a part of that selection process and to learn more about whether there are any ways in which it could create concerns that reach the enforcement authority and responsibility of the Equal Employment Opportunity Commission.

We are privileged to have very distinguished experts here today who will share their extensive knowledge with us on the subject. They will appear in four separate panels. Because we do have a long agenda we will make use of the timing lights today. I will thank everyone who's here and say in advance that we would appreciate your efforts to work with us to hold the meeting to the period that we promised both the public and that we promised you that we hoped that it would run.

Each panelist has submitted written testimony which is going to be posted on the Commission's website and we have asked each panelist to provide up to five minutes of oral testimony as well. The written testimony is available on the EEOC website which is and will go into more detail perhaps than their oral testimony with us today.

Each panelist will be able to refer to the timing lights. A yellow warning light will go on when one minute remains in your period for testimony. And each of our Commissioners will have five minutes for each panel to ask questions of the people who have testified or to make any statements or raise any other issues.

I'm going to begin by asking every member of the Commission if they would like to also make an opening statement. They are welcome to do so at this time.

Commissioner Ishimaru?

COMMISSIONER ISHIMARU: Thank you, Madam Chair. And I want to welcome my new colleagues to the Commission. It's delightful to have you as Commissioner Barker and I were getting lonely. And it's delightful to have a full quorum. It's delightful to have new leadership. It's delightful to have new colleagues.

But I would hope my colleagues would indulge me for a minute to reflect on Commissioner Miller. When I got word yesterday that Paul Miller had passed, it was very difficult I think to think back that his voice would be silent, that we wouldn't hear from him again. And Paul Miller left quite a legacy at this Agency and in the government generally.

He was one of the longest serving members of the Equal Employment Opportunity Commission coming in 1994 I believe with then Chairman Casellas and Vice Chair Igasaki and led the Commission on so many issues including dealing with the priority charge handling revisions at the time; developing a successful mediation program, dealing with genetics before genetics was even on the map. And now that we are about hopefully to issue regulations on the Genetic Information Nondiscrimination Act. And he was also obviously a leader on the ADA and disability issues.

He served here with distinction as the Chair noted in her email to staff yesterday. He did yeoman's work in getting out to see people and made it a point to visiting all 50 states. And when I got here in 2003, he was almost at 50 states and he was going to his last few including Delaware which is right up the road, but he hadn't been there yet. And it's something that I know from my visits to colleagues and groups around the country people appreciate very much and especially in places where we don't get to that often. And Paul Miller made it a point of getting there. When Paul left us he went to become a tenured professor of law at the University of Washington and later became the Henry M. Jackson Professor of Law in a chair named for the former senator from the State of Washington. He was proud of being a law professor, I know how hard he worked at it and how good he was as a teacher.

And then after President Obama was elected in November of 2008, Paul came back to work on the Transition Team and as one of his agencies, he was looking at the operations of this Agency and coming to our new building here in search of a hot cup of coffee I remember one day before a meeting. And Paul stayed on to become a Special Assistant to President Obama, spending the first nine months of the Administration working in Personnel. And I know from my many conversations with him during this time of how proud he was to find a slate of candidates to come here. And he shared that joy with me and I think having our new colleagues here is a true testament to his legacy.

We will miss him deeply. And I just wanted to spend a few moments to reflect on that.


COMMISSIONER ISHIMARU: I'm delighted we're having this hearing as well. I thought our meeting back in 2007 under Chair Earp was a good start and certainly it raised a lot of questions in my mind of what sorts of devices, what sort of screening devices, are out there that may cause problems, especially things that have come up with the use of technology, with the increased growth of technology of things that we could not have imagined a decade ago.

Credit checks may fall into that. At first when I first started hearing about the use of credit checks, flags didn't go up. I thought, well, that's sort of the way folks do business. And then you hear about possible disparate impact on certain groups and what that might mean and you wonder whether credit checks themselves may raise questions about whether they work as an employment screening device, whether they are tied to job performance, questions of what sorts of studies have been done, what sorts of data are out there, what sort of impacts might there be on people who don't have credit, people who don't have credit for religious reasons -- Muslims I believe don't use credit. That's my understanding. People with disabilities who have not been in the workforce may not have a credit history. People in these economic times may be impacted on how their credit history has operated.

And I am interested during the course of this hearing of learning more. And I'm delighted that our various panelists have joined us. I'm delighted that our colleague from the FTC has joined us, looking forward to hearing more about the Fair Credit Reporting Act. And again, Madam Chair, I salute you on calling this meeting and again welcome you and our colleagues to the EEOC.

CHAIR BERRIEN: Thank you, Commissioner Ishimaru. And thank you so much for your reflections on former Commissioner Miller.

Commissioner Barker?

COMMISSIONER BARKER: Thank you, Madam Chair. I'd like to join Stuart in welcoming everybody here and particularly our panelists and to thank them for taking the time not only to come here and testify but also to prepare their written testimony in advance which I know required you to take time out of your very busy days and make sure the research was right and all of the information contained in your statements was accurate. And I very much appreciate your willingness to share your expertise and your experience. As far as the subject matter that we're here to discuss, I would respectfully reserve any comments on the issue until we've heard all the testimony.

But I do join the Chair and I know all the Commissioners in expressing my deep sorrow at the loss of Commissioner Miller. He was an extremely extraordinary person and just a very special person that we have all lost. Thank you very much.

CHAIR BERRIEN: Thank you, Commissioner Barker.

Commissioner Feldblum?

COMMISSIONER FELDBLUM: So I too, want to begin as my colleagues did with taking a moment to honor the memory of Paul Miller. And I think on behalf of Paul here I'm going to say something that I believe is a fact. But when we gave an award to Paul Miller as well as other people from the Commission who had worked on the ADA at the 20th Anniversary of the ADA, and his staff person at the time, Antoinette Eates, accepted the award on his behalf. She said, "And Paul said to make sure that I say, 'I was the longest running Commissioner, not one of.'" So he clearly, I guess -- So I'm just depending on his factual analysis to know that his tenure made him the longest.

COMMISSIONER ISHIMARU: I actually pulled that from the bio on the web.

COMMISSIONER FELDBLUM: I know, on the web, and I think that's what he's annoyed about; It's like "Don't call me one of."

COMMISSIONER ISHIMARU: But it was his bio on the university website. So be it.

COMMISSIONER FELDBLUM: So the textual debate continues. Okay.

For those of you who didn't know Commissioner Miller and for those of you who did, you know that Paul Miller was a force of nature both within the disability rights community and really in the general world. He used humor, strategy and guts to push for the type of change in the world that he knew would make a real difference in peoples' lives.

Paul Miller was persistent and dogged in his pursuit of justice. But he was also charming and disarming so that when people started doing the things that he wanted them to do they actually were happy they were doing it, not a bad approach. As someone who now sits in one of the Commission chairs that Paul Miller filled so ably, I am guided and strengthened by his commitments, caring, strategy that marked his tenure at the Equal Employment Opportunity Commission.

But then as Paul I think would say, "Well, all well and good, but let's get down to tachlis." Now I don't actually know if Paul ever used the term "tachlis" but he used a lot of Yiddish words that I did know. So this is a Yiddish word I heard a lot growing up. So tachlis means the real stuff. You know, let's produce. Let's look at the output. Okay, so I think Paul would actually be happy to know that on the day after his passing, on the day that he's being honored, the Commission is also getting into some real stuff.

So I am looking forward to the testimony from today's witnesses. I, for one, am very proud to be serving on an agency that is vigilant in rooting out cases of blatant disparate treatment on the basis of race. For example, the Roadway case in which the EEOC recently got a strong consent decree, was one in which one individual came to an EEOC office complaining of racial harassment, including a noose at the workplace. And based on the investigation, and ultimately an investigation of the litigation; it came to light that African American employees were routinely being required to lift heavier loads than other employees; that a miracle of computers that scan every load and connected with the employee was able to demonstrate that; and that they would be more harshly disciplined than other employees also, all on the computer. That's flat out disparate treatment. There is no reason for such treatment other than animus on the basis of race. There is nothing subtle about those cases.

I'm also proud that we as an agency pursue what are called disparate impact cases. These are situations in which there isn't malice or intent to harm a particular group. Rather, these are cases in which neutral policies that quite likely have been adopted for any number of reasons, none of them having to do with intentional discrimination against a particular protected legal category, nevertheless end up having a disparate impact on a protected group. These situations are way more complex. But precisely because of that they are incredibly important to scrutinize and understand because they can have a really large impact on a really large group of people.

So I am pleased that Chair Berrien has convened this meeting today. And I'm grateful to the witnesses for their time and effort into the testimony that they will present.

To help witnesses get a sense of where I am coming from on this, I am particularly interested in understanding why employers today are using credit checks, that is, what do they see as the utility of spending all the money for this particular good that they're purchasing from these credit card companies. And, I'm particularly interested in cases in which credit checks are being used to screen applicants for a range of jobs beyond those that include high level fiduciary, handling money cases.

So I'm going to just need some help in understanding the connection between the information that employers can get from credit checks and the "suitability" for the job in those cases. So I look forward to being illuminated on that front. Thank you so much.

CHAIR BERRIEN: Thank you, Commissioner Feldblum.

And Commissioner Lipnic?

COMMISSIONER LIPNIC: Thank you Madam Chair. Good morning, everyone. And my thanks to all of the Commission staff for all their work in putting together this meeting and the Chair for calling it on this important topic today. And I also, along with my colleagues, want to thank all of the witnesses for all the time and effort that you put into both being here and the preparation of your testimony and taking the time to answer all of our questions today.

I would also add my condolences to Commissioner Miller's family and to all of the staff at the EEOC who worked with him. I did not know Commissioner Miller well. I had only met him on a couple of occasions, although one of those occasions was when he served on the Obama Transition Team when I was Assistant Secretary at the Labor Department. And I didn't realize until Commissioner Ishimaru's comments this morning that I was perhaps being interviewed for this position at the time.


Perhaps there was some divine hand in that. But I certainly, along with my colleagues, express my condolences to his family and hope that we can certainly honor his memory here today.

On to the topic of the day. In light of the current economic climate that we are all living under, continued high unemployment, a mortgage crisis that's now turned into a foreclosure crisis; the issue of utilizing credit histories for employment purposes is a topic of growing importance. In fact, it is one that the field offices of this agency have begun to focus on more and more as an enforcement matter. And, because of that, I believe it is critically important for this Commission to hold meetings like this to discuss the legal and policy implications of pursuing a course of action related to credit histories and the impact of such policies on Title VII.

As many of our witnesses will testify to today, the use of credit reports has been an acceptable employment tool since before the passage of the Fair Credit Reporting Act. Congress specifically permitted the use of credit reports for employment purposes in the Fair Credit Reporting Act in 1970. Since then, Congress has amended the statute on two separate occasions and each time they have decided to allow the use of credit reports for employment purposes. Notably, the federal government which has over two million employees in this country continues to use credit checks on its employees as a condition of employment.

In looking over the testimony from all of our witnesses, the one thing that seems particularly clear to me is that there is much that we do not know about both how credit reports are used, the reasons for them, as Commissioner Feldblum said, what employers get out of them, and what the impact of them may be. We live in an age where there is more information about each of us than any of us would care to think about publicly available. And at the same time, the more that information has become publicly available, the more concerned we have all become about our privacy. But the mission of this Agency is about prohibiting employment discrimination. So it seems to me that there is much that we can learn on this topic of the use of credit reports. And going forward, I hope that we will keep an open mind about all of the information that we hear today and that of other experts who may wish to provide us with information going forward.

With that, I look forward to our testimony today. Thank you, Madam Chair.

CHAIR BERRIEN: Thank you, Commissioner.

And we'll begin now with our testimony and I invite our first panel and panelist, Manessha Mithal.

Ms. Mithal is Associate Director of the Division of Privacy and Identity Protection at the Federal Trade Commission's Bureau of Consumer Protection. In this capacity, she supervises work in the area of data security, identity theft, credit reporting, behavioral advertising and general privacy. She's held numerous positions at the Federal Trade Commission, including Chief of Staff of the Bureau of Consumer Protection and Assistant Director of the International Division of Consumer Protection. Prior to joining the Federal Trade Commission in 1999, Ms. Mithal was an attorney at the Washington law firm of Covington and Burling, where she practiced in commercial litigation, international litigation and legislative areas. Ms. Mithal earned her law degree and her undergraduate degree from Georgetown University.

Ms. Mithal, thank you so much for joining us today.

MS. MITHAL: Thank you, Madam Chair. Madam Chair, Commissioners, I appreciate the opportunity to discuss the use of consumer reports in employment.

Now consumer reports may include information about credit history. They may also include criminal record information, insurance claim histories, educational history and other background information about consumers. They may also include a combination of credit history and noncredit information. But regardless of the type of consumer report, the same general regulatory structure applies. The primary federal law of governing their dissemination and use is the Fair Credit Reporting Act. The FCRA regulates the practice of companies that maintain consumer reports. These companies are known as consumer reporting agencies or CRAs. It also regulates the entities that provide information to CRAs as well as those that use consumer report information such as employers. The FCRA is designed to promote the privacy, accuracy, and fairness in the collection and use of sensitive information about consumers.

Now my written testimony mentions several FCRA requirements that apply to the use of consumer reports in employment. And let me focus on three during my oral statement.

First, before providing the report to an employer, the CRA must take reasonable steps to ensure that the employer has a permissible purpose for receiving the report. And although employment is a permissible purpose, an employer can't use his or her status as an employer as a pretext for getting consumer reports about people other than job applicants or employees. So, for example, an employer can't get a consumer report about a competitor or an opposing party in litigation. Nor can they get reports for mere curiosity about employees. It has to be in the context of hiring, retention, reassignment or promotion.

In addition, the CRA providing the report, must take reasonable steps to ensure that someone isn't posing as an employer with a permissible purpose to get information about consumers. These requirements are designed to promote the privacy of sensitive consumer report information so that it's only shared in specified circumstances.

Second, before providing consumer reports to employers, CRAs must obtain a certification that the employer will not use the consumer report information to violate any equal employment opportunity law. This requirement is designed to prevent discrimination based on the use of consumer reports.

And third, the FCRA includes several requirements to ensure that information in consumer reports is accurate, so that consumers aren't denied important rights such as employment because of erroneous information in their consumer reports.

On the front end, CRAs are required to maintain reasonable accuracy of consumer report information. In addition, the FCRA requires employers to notify consumers when consumer report information is used to deny them employment, promotion or other benefits. This notice gives consumers the opportunity to check their consumer reports for free, to discover any inaccuracies and to dispute those inaccuracies with either the CRAs or the companies that provided the information to the CRAs.

Because employment is such an important right, the notice requirements for employers are particularly robust. So, for example, in the credit context, a consumer would only get a notice once credit has been denied. In the employment context, the employer must provide notices before and after any adverse action is taken.

The FTC has been aggressive in enforcing the FCRA provisions related to employment. Perhaps our most well-known case in this area was against ChoicePoint in which we alleged that the company sold 160,000 consumer reports to identity thieves, some of whom were posing as employers. As described in my written testimony we've also brought several cases against employers for failing to provide required notices to consumers such as adverse action notices that alert consumers to check their consumer reports for possible errors.

And finally, we educate businesses and consumers of their FCRA rights and obligations. For example, we recently issued an education piece for job applicants and employees relating to their employment rights under the FCRA. We also issued guidance for businesses which is available on the New Business Center portion of our website at

The FTC is committed to using all of its tools under its disposal to enforce the FCRA. We look forward to continuing to work with the EEOC in this important area. Thank you for the opportunity to testify and I'd be happy to answer any questions.

CHAIR BERRIEN: Thank you very much Ms. Mithal.

Commissioner Ishimaru, do you have any questions?

COMMISSIONER ISHIMARU: I have a few, Madam Chair. Thank you.

Thank you for your testimony, very helpful. Can you talk a little bit more about how the Commission would deal with an adverse action issue? If the employer doesn't tell a person that a credit check was done on them, the information was used, how would you know unless there was a whistleblower within the agency or within the company?

MS. MITHAL: Sure. We find out through several sources. So, for example, we have a comprehensive consumer complaint database. We get about 20,000 consumer complaints a week. Many of those complaints are about the FCRA. So we do get consumer complaints.

We also get complaints and petitions from consumer watchdog groups. So, for example, last year we brought a case, two cases, against two railroad companies that were failing to provide pre-adverse action and adverse action notices to consumers. The consumer watchdog group sent us a petition saying that this practice was happening, we investigated, we found that it was indeed happening; and so we brought enforcement action and we got civil penalties in that case.

And we also monitor the industry. We do enforcement sweeps. We'll look at a particular industry. We'll look at particular types of CRAs. And we'll take our own initiative to do sweeps and monitor compliance with the FCRA requirements.

COMMISSIONER ISHIMARU: You also have some sort of public information campaign to let people know that they have these rights under the Fair Credit Reporting Act?

MS. MITHAL: Absolutely. We do a lot of consumer education. So on our website, our most recent education piece is on the use of background screening and employment. And I think it's important to note that we don't simply just put up an education piece on our website and expect consumers to find it. Part of our strategy is kind of a train-the-trainer strategy. So we're often out in local communities, churches, senior centers, nonprofit organizations, legal services organizations and we're providing them with materials. And we say if consumers walk in the door wanting to know how to dispute errors in their credit reports, here's the information that you can provide them.

COMMISSIONER ISHIMARU: One other question, in your statement you were talking about how the use of credit reports needed to be tied to an employment action. So I take it from that that you can't -- An employer could not use credit report information prophylactically. And I'm trying to reconcile this with some of the other pieces of your testimony where it sounded like -- and perhaps the witnesses later can tell me how this fits, but it sounds like employers in some situations may get the credit information to find out how the employee is doing, to find out whether they have a credit problem, to find out whether they have gambling debts or a huge amount of debt. That at least in my mind is not tied to an action. How does that square with the enforcement rule of the FTC?

MS. MITHAL: Well, when the FCRA spells out the permissible purposes in the employment context, the permissible purposes are limited to hiring, retention, reassignment or promotion. So I think as I said in my oral statement, mere curiosity, "Hey, what's my employee doing on the side" wouldn't satisfy the permissible purpose requirement. So the employer has to certify that there's a permissible purpose which includes those four items.

COMMISSIONER ISHIMARU: But if a person was not up for a promotion, they were just looking to see prophylactically whether there was a problem here; would that be allowed?

MS. MITHAL: I think we'd have to look at it on a case-by-case basis and the specific facts of the case. But I think that if -- again there's a line here that I think again would depend on the case, but mere curiosity, not permissible. Find out whether there is a problem -- is the employee going to be eligible for a promotion coming soon? -- I think that would be decided on a case-by-case basis.

COMMISSIONER ISHIMARU: Thank you very much. Would you pass my regards on to Chairman Leibowitz on the fine job he's doing at the FTC?



Thank you, Madam Chair.


Commissioner Barker?

COMMISSIONER BARKER: I just have a few questions and thank you Commissioner for your very -- I forgot about our little microphones.

Following up on Commissioner Ishimaru's question, if I have a small bank, and I've got three tellers in my small bank and one of the tellers has a regular problem, a pattern, that's developed of not balancing, you know, cash missing, and I know that teller is making frequent trips to Vegas, and rumor is that she is routinely losing; would that fit within, would that justify me checking to see what her credit history is?

MS. MITHAL: I think if --

COMMISSIONER BARKER: I mean if money is lost from her box, she's entrusted with a drawer of cash every single day.

MS. MITHAL: Right. I think what the analysis would be is the employer would have to certify that there is some sort of permissible purpose and that if the employer were considering demoting the employee or firing the employee or taking disciplinary action against the employee, then I think there would be a permissible purpose there.

COMMISSIONER BARKER: So an employer can't just decide for whatever reason to get a credit report or consumer information about these employees, he's got to certify to the FTC, is that right? Does he certify to the FTC?

MS. MITHAL: No, the employer certifies to the consumer reporting agency from whom they're getting the report.

COMMISSIONER BARKER: Okay, So it might be say Equifax or some organization like that?

MS. MITHAL: Exactly.

COMMISSIONER BARKER: And can you tell me a little bit more about like an agency, let's say Equifax that deals with providing this information. When they first -- Let's say they have a new customer, let's say it's this bank. Can you tell us a little bit about the steps that that agency goes through, the CRA goes through, to ensure the proper handling of this with this information?

MS. MITHAL: Sure. The CRA, the requirement of the CRAs is they must take reasonable measures to determine that, for example, the bank is getting the information for permissible purposes. So what those reasonable measures could include is, let's say they're getting a lot of complaints about this bank, they probably have to inquire further. If they get complaints saying, "Oh gosh, this bank really is getting reports about other people, not employees," they would have to do some due diligence there. So there's a reasonableness requirement, and I think how that would apply would depend on a case-by-case basis.

COMMISSIONER BARKER: What about -- Does the CRA have to initiate a process where they ensure that information, confidential information, is being maintained in a secure manner?

MS. MITHAL: Yes, actually. So there's a requirement that the CRAs, in addition to making sure that the employers have permissible purposes for receiving the consumer reports, I think we would interpret the FCRA as saying that if there's some sort of security problem in the recipient of the consumer report, that the CRA would have to do a reasonable investigation.

COMMISSIONER BARKER: And did I understand that the employer is required not once but twice to notify, say, an applicant for a job?

MS. MITHAL: That's right, that's right, so, before the employer actually takes the adverse action, the decision not to hire or the decision to fire; there has to be a notice to the consumer and the notice has to include a copy of the consumer's consumer report. Then, once the -- That way the consumer might have some time to raise the problem with the employer. "Hey, this is inaccurate" and they could actually file a dispute with the CRA and start that process underway. Then a period of time has to elapse and then the adverse action once it's taken, the actual firing or the hiring of someone else; the employee or job applicant has to get a second notice with an opportunity again to check their credit reports for free.

COMMISSIONER BARKER: All right. Thank you very much.

MS. MITHAL: Thank you.


Commissioner Feldblum?

COMMISSIONER FELDBLUM: Thank you. Thanks so much for testifying. A few preliminary questions first. So the Fair Credit Reporting Act was passed in 1970, correct?

MS. MITHAL: Right.

COMMISSIONER FELDBLUM: And the section of the Act codified, I got from your testimony, 15 USC Section 1681(B) provides three permissible purposes for using information from credit reports: (1) credit transactions, (2) insurance underwriting and (3) employment decisions. Am I correct that these three purposes were part of the law when it was passed in 1970?

MS. MITHAL: I believe it was and I should also clarify that those are examples of permissible purposes, there may be other examples. So, for example, if you're a landlord renting out property to a tenant, the landlord would have a permissible purpose for getting the consumer report.

COMMISSIONER FELDBLUM: Okay, so this was such as, but not limited to…

MS. MITHAL: Right.

COMMISSIONER FELDBLUM:…these are the permissible purposes. And within the employment purposes, what employment decisions, it included hiring, if you're going to hire the person, retention, whether you're going to keep the person or fire them, reassignment, when you assign them somewhere and promote them?


COMMISSIONER FELDBLUM: And those four, and have those four categories been there since 1970?

MS. MITHAL: I'm actually not sure of the answer to that.

COMMISSIONER FELDBLUM: Okay. I would be curious whether that was in the statute or from the regs. Okay, so my question, my substantive question here is there any evidence of what Congress was thinking about when it said that information on credit reports could be used for employment purposes, I mean what sort of information do we know? I mean do we know from the testimony? Do we know from the legislative history at the time anything about what Congress thought an employer might legitimately need to use in those reports?

MS. MITHAL: Well, I think it's interesting because I think this is why I started out my oral statement talking about consumer reports as opposed to credit reports. So the FCRA talks in terms of consumer reports of which a credit report is one slice of that pie. So, for example, the FCRA would cover criminal background checks or driving history records or educational history records. And so there's a lot of information other than credit information.

So I don't know that Congress was specifically saying credit reports for employment. It's just the consumer reports as a whole, this is the scheme that governs all of them.

COMMISSIONER FELDBLUM: Got it. Okay. Well, that sort of previews a question that I was going to -- I had decided that Ms. Walters from SHRM might be the best to answer this. But I'm curious about whether companies tend to get -- You know, like in the car wash when you can get like the whole enchilada. Like "Okay. I'm already there, I'm just going to get the whole thing."

MS. MITHAL: Right.

COMMISSIONER FELDBLUM: Or, can you sort of order a la carte and just say "Actually, what I need here is the employment history." So it's got all the employers that you've ever worked for. I mean, do you ever sense this is not so much a regulatory issue? It's just sort of on the ground which is why I think SHRM has the data. But I'm just curious in terms of what you see?

MS. MITHAL: Well, I think that there is the ability to slice and dice. And I've probably seen the same data that you have or that SHRM has which shows that not all employers use credit information. And so I think there is that ability to slice and dice. But I'm just not sure of the numbers. They would have a better idea than I would.



Commissioner Lipnic?

COMMISSIONER LIPNIC: Thank you, Madam Chair, and welcome, Ms. Mithal.

MS. MITHAL: Thank you.

COMMISSIONER LIPNIC: I had a couple of questions about the FTC's enforcement actions. Do you know, has the FTC ever brought any actions about the use of consumer reports in violation of state or federal EEO laws?

MS. MITHAL: We have not. We have tended to defer to this agency on employment issues and the use of credit reports in discriminatory fashion.

COMMISSIONER LIPNIC: So if I ask, "Well, is there some standard that the FTC applies, it's you don't have a standard, you're just looking to what we would do?

MS. MITHAL: Yes, and I should also note, so there's another area; there's the Equal Credit Opportunity Act which we also enforce, so we do enforce laws prohibiting discrimination in credit. And in that area there's a certain slice of the marketplace for which really we're the only cop on the beat. And so we have brought about two dozen cases alleging violation of the Equal Credit Opportunity laws.

COMMISSIONER LIPNIC: And is that in an employment context?

MS. MITHAL: No, that's in credit. So that's discrimination in mortgages. So, for example, we just brought a case where a mortgage company was charging higher prices to Hispanic consumers than to non Hispanic consumers. And so in the credit context I think our view is that since we're the cops on the beat there, we want to be aggressive there. On the employment side, I think we have tended to defer to the EEOC.

COMMISSIONER LIPNIC: But the FTC regulations, you do cover employers as entities who use consumer reports?

MS. MITHAL: Yes, we do, and so a lot of our enforcement actions there relate to the privacy and accuracy of consumer reports. So did employers provide consumers with the proper notices so that consumers could go check their credit reports for inaccuracies? And that's been the focus of our enforcement on employers, against employers.

COMMISSIONER LIPNIC: And roughly how many actions have you brought against employers for those kinds of violations? And you might have said earlier, but what are the penalties in that?

MS. MITHAL: So we brought probably about 20 over the last several years. The penalties for violations of the FCRA are $3,500 per violation. So the penalties in our cases have been in the hundreds of thousands of dollars.

COMMISSIONER LIPNIC: So you could have multiple violations?

MS. MITHAL: That's right.

COMMISSIONER LIPNIC: Okay. And also, you said earlier that as part of your enforcement strategy that you're looking at industry specific enforcement sweeps?


COMMISSIONER LIPNIC: And so I'm wondering, do you have some information about what industries make more use of credit reports as compared to others, and why that may be?

MS. MITHAL: Again, I think this goes back to the question. I think our enforcement really isn't focused on credit reports in employment; it's focused on consumer reports in employment. So in terms of which employers are using credit reports, which employers are using noncredit consumer reports; I don't think we have that information. I think we're just simply looking to see, are you covered by the FCRA, are you providing the required notices?

COMMISSIONER LIPNIC: What about as to consumer reports? Do you have specific industries who make more use of consumer reports generally whether they are a la carte or you're having the whole meal?

MS. MITHAL: I don't have statistical evidence. But I guess my impression is that many industries do use consumer reports. They do criminal background checks on employees. And if you're applying for a bus driver job, they might look at your driving records, they might look at your educational records; and so my sense is that a lot of employers do use consumer reports.

COMMISSIONER LIPNIC: But to the best of your knowledge the FTC doesn't have specific industry statistics as to w

ho is using them or not?


COMMISSIONER LIPNIC: Okay. And in the employment context for the requirements under the Fair Credit Reporting Act you said that you would look at both before and after an adverse action is taken, right?

MS. MITHAL: That's right. So in the railroad cases that I mentioned that we brought last year, those companies did not provide what we call pre-adverse action notices nor did they provide post-adverse action notices. And so we alleged both violations in those cases.

COMMISSIONER LIPNIC: Okay. And you also said that you will get notices from consumer watchdog groups about here may be a problem in the railroad industry?

MS. MITHAL: That's right.

COMMISSIONER LIPNIC: What about from individuals? Do you take complaints from individuals and how are those addressed through the FTC?

MS. MITHAL: Yes. We have a toll-free consumer hotline, consumer complaint hotline. We get about 20,000 consumer complaints a week.


MS. MITHAL: A week. Thousands of those complaints relate to the FCRA. And so what we do is we analyze those complaints on a regular basis and we look and see whether there are trends or sectors that we should be targeting.

COMMISSIONER LIPNIC: And so can you give us some indication of what trends or sectors you may see in those right now?

MS. MITHAL: Right. I think that the only thing I can say is that we continue to get a steady stream and I don't know that I've seen a comparative analysis of what the trends are, but we continue to get a steady stream of consumer complaints.

COMMISSIONER LIPNIC: No further questions. Thank you very much.

COMMISSIONER FELDBLUM: Madam Chair, can I ask one follow-up question?



Because Commissioner Lipnic's comments reminded me of a note I had down here to ask you. Because you noted that there would be some complaints and then you had the investigation that then went to the litigation. Can you give us a sense of how your investigators and litigators interact with each other in figuring out these cases?

MS. MITHAL: Sure. So we have a staff of actually not that many attorneys working on these kinds of cases, but we can always use more resources. But we have a small staff working on these kinds of cases and we don't divide up the investigation and litigation. You have a case assigned to you from the start. You investigate it. You engage in negotiations. And if negotiations fail, then you would litigate yourself.

Now, there's an exception in the FCRA because we can seek civil penalties. A lot of times our civil penalty cases are referred over to the Department of Justice. And so for a lot of our FCRA cases that we file in court, we refer them to the Department of Justice. But some of those we litigate on our own, too.

CHAIR BERRIEN: Thank you, Ms. Mithal.

I would like to ask you about a few things. You mentioned litigation against ChoicePoint, but I understand that the FTC also filed litigation against Equifax, Experian and TransUnion? MS. MITHAL: That's right.

CHAIR BERRIEN: Concerning the response to disputes or questions about errors in records. Could you talk about that litigation?

MS. MITHAL: That's right. One of the requirements is that the CRAs maintain reasonable procedures to allow consumers to file disputes, to dispute inaccurate information in their credit reports. And back in 2000 we brought a case alleging that consumers were calling CRAs to register disputes. They were facing busy signals, extremely long hold times and that CRAs basically didn't staff up their call centers sufficiently enough to be able to respond to consumer disputes. And so we alleged that that was a violation of the FCRA and we brought an action in 2000 involving the three major credit bureaus.

CHAIR BERRIEN: And is the -- I believe the court order was entered in that case. Is that still open? Is the court still monitoring the behavior of any of those agencies?

MS. MITHAL: Yes. I believe our order is -- I forget the exact period that it lasts for, but that order still applies.

CHAIR BERRIEN: And some FTC reports have suggested that more than half of consumers have discovered some type of error in a credit report, is that correct?

MS. MITHAL: So we did a pilot study on accuracy in credit reports, in consumer reports, a couple of years ago. And the main thing that that study did is we tried to develop a methodology to do an accuracy study that represented the population at large. And so one of the things we did in that study is we cataloged the studies thus far on accuracy. There is one study that found approximately a 50 percent dispute rate, but I think with those things it has depended on who you ask. In the next year we hope to come out with a more definitive accuracy study that would represent the industry as a whole.

CHAIR BERRIEN: Okay. And the FTC has also been monitoring the issue of identity theft, is that correct?

MS. MITHAL: Absolutely. We are -- We do monitor identity theft. In fact, I talked about the complaint hotline. We get more complaints about identity theft than any other category of consumer complaint. And there is a lot of tools in the FCRA to address identity theft victims. So, for example, an identity theft victim can place a fraud alert on their credit report so that if they're a victim of identity theft, new credit can't be opened in their name until the consumer is contacted. So that's one protection.

A second protection is that if an identity theft victim got a police report and took it to the consumer reporting agencies, the consumer reporting agencies would have to block the reporting of that information, of any information that was collected under the identity thief's name.

And, finally, the identity theft victim presents documentation to the people who provide consumer report information. Those providers can no longer report that information.

CHAIR BERRIEN: I'm not sure if there's a more recent addition of this report, but I understand in 2006 the FTC reported that in its identity theft survey report found that approximately 8.3 million Americans were victims of identity theft.

MS. MITHAL: That's right, that's right. There's not been a more recent report. I think that we've changed our methodology a little bit and we've decided rather than doing our own surveys, that we would get the Bureau of Justice Statistics to help us because they have a National Victims of Crime Survey where they survey about 40,000 consumers. And so we thought that would be a better gauge of how much identity theft is happening in the marketplace. And those results should be out soon.

CHAIR BERRIEN: Thank you. And under the FCRA, my understanding is employers have to certify that they will not use the information they obtained to violate EEO laws, is that right?

MS. MITHAL: That's right.

CHAIR BERRIEN: And can you tell us what if any action the FTC has taken to either determine employer compliance with that provision, or if there's any history or any involvement of the FTC with trying to monitor compliance with that provision?

MS. MITHAL: We have not. And I know that our staff has had discussions with your staff about this issue. And I think that we've tended to defer to this agency on that point. And we'd certainly be happy to work with your staff going forward to identify any issues that we see or to have an open line of communication on that issue.

CHAIR BERRIEN: Can you tell us what the employer has to certify for that part of the FCRA?

MS. MITHAL: It's two certifications really. One is that they're going to use the employment, the report for a permissible purpose. And the other is that they will not use the report in a manner that violates state or federal equal opportunity laws or regulations.

CHAIR BERRIEN: Thank you. Thank you very much for your testimony here today.

COMMISSIONER ISHIMARU: Madam Chair, could I ask one follow-up question to that?


COMMISSIONER ISHIMARU: I just want to be clear that the FTC does not have authority to enforce Title VII or the laws we enforce here. You're enforcing the -




MS. MITHAL: That's right.

COMMISSIONER ISHIMARU: Thank you very much.

CHAIR BERRIEN: All right. Thank you very much, Ms. Mithal.

MS. MITHAL: Thank you.

CHAIR BERRIEN: We appreciate your time.

If the second panel could please approach and, as you do that, I'll begin introductions as you begin to get seated.

And this panel will be our first of two stakeholder panels today in today's meeting. And I'd like to welcome all three panelists, although I will introduce you separately immediately before you testify. Welcome to Mr. Eastman, to Ms. Wu and to Dr. Jones-DeWeever.

Mr. Eastman is Executive Director of Labor Law Policy for the U.S. Chamber of Commerce. Michael Eastman joined the U.S. Chamber of Commerce in October 2002. He serves as the Executive Director of Labor Law Policy, and in this capacity, he works with members of the business community to develop sound labor and employment policy and advocates for that policy before Congress and administrative agencies. Before joining the Chamber, Mr. Eastman practiced labor and employment law with the law firm of McGuiness Norris & Williams and earlier served on the legislative staff of Congressman James P. Moran in Virginia. Mr. Eastman earned his undergraduate degree from Colgate University and his law degree from George Mason University. And we appreciate you being here today. Thank you.

MR. EASTMAN: Thank you, Chair Berrien and Members of the Commission. My sense in observing the debate over the appropriate use of employee credit history is that there's 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 that reason, in preparation for today's meeting, I contacted a number of members of the U.S. Chamber to learn how they use credit, if they use it at all. And I hope that this information will assist you as you consider the important legal and practical issues related to this important matter.

Background checks are an essential employment screening tool. One component of a minority of background checks in the private sector is credit history. For employers that do utilize credit history information, I've not spoken to any that utilize 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 about 5,000 people in the United States, and it includes credit history as a component of the background check for approximately 100 of those employees that have direct access to either the companies or its clients' funds. This company has had experience with former employees embezzling client funds and believes examining credit history is one important tool in making hiring decisions. Interestingly, this company told me that they intended to decrease the use of credit history in the future because of improvements in technology that will enable them to better prevent embezzlement by employees in the future.

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 it could include those with access to client or customer credit card or account information. It also includes employees that may have access to trade secrets, confidential company property or even controlling substances.

A common misperception is that employers consider credit scores when examining credit history. Simply put, I have found no employer that considers credit scores. It's my understanding that most employers typically don't even receive credit scores as part of the credit report.

I think it's important to emphasize that the factors that would go into an employment decision based on a credit report can differ rather significantly from those decisions that go into whether to lend credit or lend money. A credit score of 550 or 700 may convey important information to 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 money or what rate to set, but it's generally not considered for employment.

Also not all debt is considered equal. The circumstances under which an $80,000 debt in collection may be irrelevant to the credit score, but an employer would consider the circumstances rather significant. Employers are much less likely to be concerned with a debt that arose as a result of a medical issue, a period of unemployment or a divorce. On the other hand, some types of debt might raise red flags more quickly such as gambling debt.

And this example is not a hypothetical. One employer told me that after they suspected an employee of stealing client funds, an investigation revealed that they 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 the individual in a position with direct access to client funds.

Additional information on a credit report might indicate that although the individual has an outstanding debt, 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 also be considered in addition to any negative information.

It's important to emphasize I think that employers do not rely on a credit report standing alone in making employment decisions. To the contrary, rather than serve as an immediate disqualifier, employers generally treat issues raised as requiring further investigation.

Now 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. My written testimony includes several excerpts from an Inspector General report from the Department of Homeland Security describing the extent to which credit history is considered for suitability determination. DHS quotes the Ethical Conduct Standards requiring employees "to satisfy in good faith their obligations as citizens including all just financial obligations especially those such as federal, state or local taxes therein imposed by law." It also states "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, the 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 the national security or the possibility the selectee could be blackmailed or attempt to engage in illegal acts to generate funds." However, 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.

Thank you for the opportunity to speak with you today. I look forward to your questions.


We'll begin with Commissioner Ishimaru.

COMMISSIONER ISHIMARU: Thank you. Nice to see you again.

MR. EASTMAN: Thank you.

COMMISSIONER ISHIMARU: As we think about this, you say in your chats with employers that most people don't do it for all jobs. Do you think that's a best practice to keep it focused on certain types of jobs rather than doing it as a prophylactic device for all of your jobs like the federal government apparently does?

MR. EASTMAN: I think if an employer is going to consider using credit history and I think the lawyers that I've spoken with, the counsel of employers in this area, certainly would advise clients to be sure that there's a job related reason for it. There's not a long track record in terms of legal cases in this matter. But that's certainly the advice I would give counseling an employer looking at this.

COMMISSIONER ISHIMARU: And with the increased availability of this information through technology and as we've seen on the lending side by using FICO scores, if something developed for credit history that was similar to a FICO score that might be of use to employers, would that be something employers should use, could use? Is that something they would want to use as an initial screen to see whether someone would be qualified even to be interviewed if it was easy and cheap to do that?

MR. EASTMAN: I think it would be very difficult when you start talking about initial screens to look at broad use of credit and especially what you describe in terms of a score. My impression from talking to employers is they're looking at something that is relatively well tailored and they're doing the best job they can for someone they're about to hire.

COMMISSIONER ISHIMARU: Also fairly late in the process it sounds like from your conversations?

MR. EASTMAN: Yes. My understanding is this is one of the final steps in the process.

COMMISSIONER ISHIMARU: Right. Because as we deal with the whole question of multiple points of entry of somebody applying for a job, the burden on the employer to sort of cull through all the applicants for that is very difficult and I would assume employers are looking for ways of how do you separate qualified people from nonqualified people?

MR. EASTMAN: That's absolutely right. And I would say in terms of background check broadly there are many aspects of that, some of which occur very early in the process. You know, do they have the credentials? Do the references check? And some that are very late in the process such as the credit check.

COMMISSIONER ISHIMARU: Right. So you don't see the use of credit information being expanded to cover the early stages of the employment process?

MR. EASTMAN: I do not see that. Right.

COMMISSIONER ISHIMARU: Thank you very much.

CHAIR BERRIEN: And excuse me. I apologize. Commissioner Ishimaru, I opened questions and actually we should hear from the other two panelists and then open the questions. We'll make appropriate adjustments down the road.

COMMISSIONER ISHIMARU: Do I get extra time, Madam Chair?

CHAIR BERRIEN: Actually I think it works the other way around and I do apologize for that.

Ms. Wu, Chi Chi Wu, is a staff attorney with National Consumer Law Center and has been with the Center since 2001. She's an expert on consumer credit issues ranging from credit cards to medical debt to fair credit reporting. And before joining the NCLC, Ms. Wu was Assistant Attorney General with the Massachusetts Attorney General's Office. She also served as a Harry Dow fellow at Greater Boston Legal Services and Assistant General Counsel at the U.S. Food and Drug Administration and a staff attorney at the Massachusetts Supreme Judicial Court. She is an active member of the Boston legal community and serves on the board of directors of the Fair Housing Center of Greater Boston and the Asian Pacific American Agenda Coalition. She's a graduate of Harvard Law School and Johns Hopkins University and is a member of Massachusetts and New York bars.

Thank you so much for joining us today and for traveling to be here.

MS. WU: Thank you, Chair Berrien, and thank you, Commissioners Ishimaru, Barker, Feldblum, Lipnic for inviting me here today.

I'm speaking today on behalf of the low income clients of the National Consumer Law Center. Thank you for holding this meeting regarding the critical issue of employer use of credit histories. It's a practice that we believe is both harmful and unfair to American workers for a number of reasons.

First, of course, is the absurdity of the practice. Considering credit histories in hiring creates a vicious Catch-22 for applicants. A worker who loses her job is likely to fall behind on her bills because of the lack of income. She can't rebuild her credit history if she can't get a job and she can't get a job if she's got bad credit. Commentators have called this a financial death spiral.

Now proponents have argued there is no Catch-22 because employers use credit checks strategically, take into account the circumstances for workers' financial difficulties. But we can't assume that all employers are going to be that wise and fair. Others may automatically screen out all applicants with a weak credit record. After all, it's quicker and easier to make a yes/no decision based on credit especially in a competitive market where you have a lot of job applicants. Why take the trouble?

Now the use of credit history for job applicants is especially absurd when you're looking at an unemployment rate of almost 10 percent and nearly 15 million workers looking for a job combined with foreclosures and other fallouts in the economic crisis and we've seen plummeting credit scores.

Fair Isaac reports that over one-quarter of consumers have credit scores under 600, considered a poor score. That's a 40 percent increase from before the recession. That means one-quarter of American workers are at risk of losing out on a job or even being fired over their credit history.

The use of credit histories also discriminates against African American and Latino job applicants, which I'm sure is why the EEOC is interested today. Study after study have documented how as a group, African Americans and Latinos have lower credit scores. These studies include a 2007 Federal Reserve report to Congress on credit scoring. In one of the two models used by the Fed, the mean score of African Americans was about half of that of white, non Hispanics with Hispanics fairing only slightly better.

A 2000 study by the Federal Trade Commission on the use of credit scores for auto insurance, finding substantial racial disparities with African Americans and Hispanics strongly over represented in the lowest scoring categories.

A 2006 study from the Brookings Institution which found that counties with high minority populations are more likely to have lower average credit scores than predominantly white counties. I've included a list of other studies in my written testimony.

Now, one aside, proponents of credit checks in employment have stated there's a misperception because employers don't use credit scores. That may or may not be true. But the studies I've cited are very relevant for showing disparate impact. After all, credit scores are supposed to be an accurate translation of the quality of a consumer's credit report and credit worthiness. A low score by definition means more damaging items on the credit report.

Unfortunately, the lower scores of African Americans and Latinos are not a surprise, both because of the legacy of discrimination and because these groups have been disproportionately affected by predatory credit practices such as the marketing of subprime mortgages, overpriced auto loans as well as higher foreclosure rates, all of which damage their credit history.

Despite this harm, there's no evidence that credit history benefits employers by predicting job performance. The sole study on this issue concluded there's no correlation. Even industry representatives have admitted this.

Now proponents have cited some evidence that warning signs exhibited by some fraudsters are living beyond their financial means or experiencing financial difficulties. However, just because some fraudsters might have experienced financial difficulty doesn't mean any worker with money problems is predisposed to be a thief. That's implying 25 percent of American workers are likely thieves.

Note that the same study found that men are responsible for twice as much fraud as women as are workers over 50. And another warning sign for fraud is divorce. No one is suggesting screening out men, older workers, or divorced workers because they are supposedly prone to committing theft.

Also some of the most frequent uses of credit checks such as health care or social service providers and manufacturing, are industries that handle a lot of cash. Why would employers need to check the credit histories of daycare workers, administrative assistants and nurses? Also as we've heard the credit reporting system is subject to rates of high inaccuracy, rates that are unacceptable for purposes as important as use of employment.

Finally, we've heard that there are already adequate protections in the Fair Credit Reporting Act and the Bankruptcy Code. The Fair Credit Reporting Act only provides notices for workers. And after a decade of credit abuses, one of the things as a consumer advocate I've learned is, disclosures and notices are not enough to protect consumers and workers. Disclosures are certainly not enough to protect workers from disparate impact and discrimination.

Plus I screen all of the Fair Credit Reporting Act cases every year as the author of NCLC's manual and I don't see a lot of cases where credit reports are used for employment. And I don't think that's because all of the 60 percent of employers who use this are complying with the law. I think there's a lot of noncompliance which I can explain further.

Thank you for the opportunity to testify.

CHAIR BERRIEN: Thank you, Ms. Wu.

And, finally on this panel, Dr. Avis Jones-DeWeever. Dr. DeWeever is Executive Director of the National Council of Negro Women. Both the membership and umbrella organization, the NCNW, galvanizes the collective power of more than 240 local sections along with 34 national black women's organizations, which together represent four million women of African descent in the United States. Before serving as Executive Director, Dr. Jones-DeWeever was the organization's Research and Policy Center Director. She has also held appointments with the Institute for Women's Policy Research, the Joint Center for Political and Economic Studies and the Congressional Black Caucus Foundation among others. An accomplished scholar, writer and public speaker, Dr. Jones-DeWeever is an authority on race and gender in the American economy, poverty in urban communities, inequality of educational and economic opportunity and issues of power, privilege and policy in the United States. She received a Ph.D. in Government and Politics from the University of Maryland, College Park and currently serves on the board of directors of Women's Voices Women's Vote, as well as the Women's Voices Women's Vote Action Fund. She's on the advisory board for Wider Opportunities for Women and continues as an affiliated scholar with the Institute for Women's Policy Research.

Thank you very much for joining us today, Doctor.

DR. JONES-DeWEEVER: Thank you for having me.

Good morning, Madam Commissioner and to all the Commissioners here today. I am the Executive Director of the National Council of Negro Women, the nation's oldest organization dedicated to the advancement of both civil rights and women's rights. The EEOC should be commended for its goal to eradicate racism and colorism in employment. To do so, it is certainly imperative to first identify and then discontinue practices that lead to systemic discrimination as it relates to employment opportunity in America. Clearly, the broad scale use of credit histories in the employment process is one of those practices that results in systemic discrimination which disproportionately disadvantages communities of color and especially hampers employment possibilities for African Americans.

An often-cited study conducted by Fannie Mae in 2007 firmly established a strong correlation between race, ethnicity and credit ratings. At that time, African Americans were said to be 21 percent more likely to have what would be considered a "bad" credit rating as compared to their white counterparts.

Further, race seemed to be a better predictor of credit record than was the case of income. Several scholars have pointed out a multitude of reasons as to why African Americans tend to have lower credit ratings than their white counterparts. Specifically, the reality of lower earning-power across every level of education (a problem that by the way is also shared by all women in this society but particularly among women of color), the lack of assets from which one can draw upon in case of any type of disruption in earnings, and poor access to credible financial institutions within the neighborhoods where they live, make African Americans particularly vulnerable to falling behind, and staying behind, thus significantly hampering the possibility of establishing a positive credit history.

Because there is no data that supports the assertion that a negative credit record is correlated with increased risk of theft by employees, or increased risks of workplace violence, or any of the other contentions that credit reporting agencies utilize as a marketing tool to sell their service to employers, the use of credit information as a mechanism for screening potential employees is just plain bad policy. It is a practice that has much more to do with stereotypical notions than it does with reality based on an empirically proven fact.

While such practices would be unfortunate at any time, to screen potential employees through the use of credit history now, when we are still as a nation struggling to recover from the worse fiscal calamity that we have seen since the Great Depression, is not only nonsensical. It borders on criminal.

Today, we know millions of Americans have either lost their homes, their jobs, or both. We also know that the leading cause of bankruptcy in America is not over spending. It's not indulging in far too many shopping trips to the shopping mall. It happens because one has experienced a medical tragedy that has resulted in financial devastation. To punish those Americans who have already suffered so much, and who need employment not only for their own survival, but for the well-being of their families, is unconscionable.

In America, if nowhere else in the world, we tell our children, that here, if you get knocked down, you can pull yourself up by your bootstraps and start all over again. Well, I submit to you, that utilizing the practice of taking into account a job-seeker's credit history in the employment process, is tantamount to the action of taking away that job seeker's boots. It stunts that person's ability to start over. And it does so by cutting off at the knees, the type of personal work ethic and ambition that we as a nation claim to hold dear.

There are a multitude of other problems with this practice, problems like the high error rate that is commonly known to exist among credit reporting agencies; the reality that certain types of employment, jobs that are dominated by people of color specifically, actually have a negative effect on one's credit history. And the recently uncovered travesty of thousands upon thousands of foreclosures pushed through several banking institutions without proper review of documentation, have no doubt resulted in not only the loss of countless homes but also has devastated the credit history of all of those impacted, thus potentially hampering their employment possibilities as well.

Yet, the biggest problem with utilizing credit history as a barrier to employment is that it undoubtedly results in systemic discrimination; the type of discrimination that was outlawed under Title VII, the type of discrimination that, quite frankly, no longer has a place in this nation I call home.

Thank you very much. I look forward to answering your questions.

CHAIR BERRIEN: Thank you. So we're going to do some interesting math. I think that the easiest thing is probably to provide a bit of grace for the next panels.

COMMISSIONER ISHIMARU: Why don't I -- I just yield to Commissioner Barker. At the end of the round if I have a question or two . . .

CHAIR BERRIEN: We'll do that. All right. Thank you.



CHAIR BERRIEN: Commissioner Barker?

COMMISSIONER BARKER: Thank you all. Ah, I did it again. [Turns microphone on.] Thank you all for your testimony, it's all very enlightening.

Ms. Jones-DeWeever, I had a couple of questions. You use the term, "credit rating?"


COMMISSIONER BARKER: Is that the same as credit score?

DR. JONES-DeWEEVER: It is in terms of the statistical analysis that I have reviewed in preparation for today.

COMMISSIONER BARKER: Okay, does it include anything other than the numerical score or credit rating score or can we use the terms interchangeably?

DR. JONES-DeWEEVER: That particular one refers to credit scores that were analyzed via a Fannie Mae study that examined this issue as it relates to the correlation between race and credit history.

COMMISSIONER BARKER: Okay. Let me ask you this. You've heard the testimony about how, from Mr. Eastman, about how in his experience and the employers that he's talked to are using credit scores. If we could somehow remove the sex factor and the race factor -- and I guess maybe this question is for Ms. Wu, too -- say, for example, we've heard from two panelists now that employers generally use this not as an overall screening mechanism, but when it gets down to say two or three candidates and they're about to make a job offer, then they'll check credit scores. And if there's anything in there that they question, they'll talk to the person and get them to explain it or let them formally dispute it. If you had an employer that was down to two applicants of the same race and the same sex, would you think in that situation it would be inappropriate or wrong for an employer to get a credit report, not a credit score but a credit report? What is your thought about that?

DR. JONES-DeWEEVER: In that hypothetical situation, I believe that there are no circumstances under which frankly where utilizing a credit history, a credit score, quantitative or the broader credit history as is commonly the practice, I don't believe that that should be a deciding factor. I think that that's taking the easy way out for that particular employer. And, in fact, it does not really serve as a predictor in terms of what one might expect on the job.

I would submit to you that Bernie Madoff most likely had a wonderful credit score and had a wonderful credit history, but he was a pilferer. And so I don't believe that there is a correlation. There has not been any sort of statistical analysis that have shown me any correlation between what is in one's credit record and one's performance on the job in terms of your honesty, whether or not you will steal, whether or not you will commit workplace violence.

COMMISSIONER BARKER: Well, let me ask you this. Going back to a bank interviewing two tellers that are going to have access to money and it's again same race, same sex but one person has $100,000 in gambling debts and that when asked, he or she cannot explain and the other person has no gambling debts, are you saying you feel like it would be inappropriate for that employer to take that into consideration?

DR. JONES-DeWEEVER: If that were the only time in which this practice were to take place, I might be more amenable to seeing it as being the final decision maker. However, we have heard today that this practice occurs in about 60 percent of employers. It happens a great deal in the service industry, in the retail. Sorry.

COMMISSIONER BARKER: Well, I understand your testimony. What I'm trying to get at is, are there carve-outs that you can envision where you think it would be legitimate?

DR. JONES-DeWEEVER: In a situation in which someone is daily handling cash in a large quantity like that, perhaps that might be an area. But I do know other research on other issues where you've seen individuals with the very same -- blind test studies, studies that have been done with individuals with the very same résumés given to employers, the very same background, the very same educational background, but one person has a felony, for example, and the other person doesn't. This particular study which was conducted by Princeton --

COMMISSIONER BARKER: Well, we're not talking about criminal records though.

DR. JONES-DeWEEVER: I know, but this is part of the broader consumer history, this is an example. This particular study has shown that a white male with a felony has a better chance of being called back to be interviewed and actually to receive the job.

COMMISSIONER BARKER: But here again, I'd prefer that we stick to the --

DR. JONES-DeWEEVER: So the reason why I bring this up is because, of course, that criminal history is much more controversial. But in terms of this issue of credit history where it seems much more benign, I would argue that we also need to be very prevalent -- we also need to be very vigilant to make sure that employers are not using this as a way that would disproportionately disadvantage others. And the data certainly suggests that because there are differences there based on race -- and I would argue that even though there's not a great deal of data to look at the issues as it's based on gender -- when you look at the foreclosure crisis which has had a disproportionate impact not only on race but on gender, I believe that something like this might necessarily disadvantage women as well.

COMMISSIONER BARKER: If you assume that an employer is basing a decision on a foreclosure. But here again if we're talking about a gambling debt, you do concede that there are occasions when there is nothing illegal or inappropriate for an employer using his judgment, whether he's correct or not, because he's ultimately responsible to the people, that that employee that he chooses, that that person is going to hold your money.


COMMISSIONER BARKER: He's going to be liable to you if he chooses a person who's got a huge gambling debt and a continuing practice of gambling. And she's going to be handling your money. And if she loses your money, if she takes your money, then that guy's going to be liable to you. So you do concede that if you take race and sex out of the factor, that there are times when it's an appropriate tool for an employer, whether or not we agree with his decision, is that correct?

DR. JONES-DeWEEVER: That would -- I could understand why one would make that argument and certainly it would be great to be able to take race and sex out of the factor when employers are making these decisions, but the reality is that we know that because of what the credit histories look like, and the differences that are there, that exists across race and sex, that it's hard to take that out.

COMMISSIONER BARKER: Well, here again, I'm just asking you a hypothetical if we were able to take race and sex out. I think you've answered my question.


COMMISSIONER BARKER: And am I up? Okay. I would just -- Somebody else can answer this. I'm curious about the federal government.

CHAIR BERRIEN: Ask, go ahead.

COMMISSIONER BARKER: Mr. Eastman, the federal government, to what extent do federal agencies do this? I mean, is it just Homeland Security? Or is it across the board? And what can you tell us about that?

MR. EASTMAN: I'll answer this briefly because I'm certainly not an expert on OPM policies. But, it's broader than DHS and it's broader than national security. I did see on OPM's website this morning that they say a search of the records of commercial credit reporting agencies is an integral part of almost all background investigations. It's certainly true for positions of, many positions of public trust and is indeed used far broader than national security.

COMMISSIONER BARKER: Thank you very much.


Commissioner Feldblum?


So, Mr. Eastman, you noted that none of the employers that you talked to use credit checks, credit reports, on all employees except where required by law? That is what you said in terms of -- And this was just based on the survey of the number of people that you talked to, right?


COMMISSIONER FELDBLUM: And the SHRM data says that 13 percent of employers currently conduct credit checks on all job candidates. Now again, this is a preview for the question for Ms. Walters. I'm going to ask whether they -- But is it your sense that that 13 percent who are conducting it on all are doing it because of either some requirement of law or perhaps because of the credit cards policy that the credit cards have now put on folks? Do you have any sense?

MR. EASTMAN: She's probably the best one to answer that, but I would say certainly if you get into government contractors and SEC, financial institutions and that's where a lot of that is. It's hard for me to answer much more specifically than that.

COMMISSIONER FELDBLUM: Okay. You also stated that you found no employer that considers credit scores and that it's your understanding that employers typically don't even receive the credit score number. Several other witnesses made the same point in their testimony.

I'm curious. Is it your understanding that the contracts that the employers enter into with these companies specifically say, don't send us the number? Because it would seem to me, as a default, credit scores would come along with these reports. You know it seems like an easy thing. So what is causing these numbers not to be included?

MR. EASTMAN: Right. So I've not seen those contracts between the employers and the vendors and I think that would actually be very interesting to look at. But, my understanding from the employers and from the providers of credit reports is that it is typically not provided. It is not part of the contract for some of the reasons I outlined in the testimony that it's not particularly relevant for employment purposes.

COMMISSIONER FELDBLUM: Okay. So my final question actually goes to that how they use this in relevance. So you say that employers are much less likely to be concerned about debt that arose as a result of a medical issue or period of unemployment or divorce. So can you explain what type of information employers are actually getting on this credit report that will enable them to see where the credit problem comes from? And then on what basis are you getting your sense that employers are then distinguishing based on these causes?

MR. EASTMAN: Right. So some of the items on the credit report are relatively easy to understand and others are not. You know it might say, "Wells Fargo Visa" or something like that, pretty straightforward what that's talking about. Clearly, if it said, "ABC Casino," that would be relatively straightforward, too. Many times it's not that straightforward. Many times it's "ABC Collection Company" and then you don't know what we're talking about here. And that's where the importance of not making a decision based solely on the credit report comes into play and the opportunity to enter into further either investigation or dialogue with the employee about the situation. And it may be -- the majority of employers I spoke with, do engage in dialogue with the employee. At a minimum they do the FICRA notices and process. But most provide an opportunity for response.

COMMISSIONER FELDBLUM: And was any of the employers that you talked to sort of the retail, big retail, Costco, Target, McDonalds, dah, dah, dah, sort of the retail service folks that would be employing a lot of larger, perhaps low income, low skilled workers, were any of them in that category? You don't have to name any names. I just want to know whether.

MR. EASTMAN: I did talk to some employers in that category. I'll tell you one employer in that category told me they don't do any credit checks on any employees. And there are others that do it for a much smaller section of their workforce.


Ms. Wu, so you quote the SHRM data of the 60 percent of employers who are using credit checks today. That's been used. Now I assume based on the written testimony from Christine Walters from SHRM that you're deriving that 60 percent number from combining the 13 percent of employers that conduct credit checks on all job candidates and the 47 percent of employers that consider credit history for candidates for select jobs, is that correct?

MS. WU: That's correct from the SHRM data.

COMMISSIONER FELDBLUM: Okay. Do you have a sense from the reports that you've put together of what information these employers are actually receiving in these credit reports? I mean is it your sense that it's radically different from employer to employer what they get? Or are there some basic pieces of information that all employers who use background credit checks tend to get?

MS. WU: My sense is that the employers who get credit checks, credit reports, get full reports with your typical credit report, including all what are called the trade lines or the credit accounts as well as collection accounts, public records, bankruptcies and liens. And, in fact, if you look at the SHRM study, you can see kind of what the information they're getting because it talks about employers who've denied or not extended a job offer based on certain reasons. And half of them have denied jobs based on accounts in collections. So they're getting collection trade lines.

By the way, that's where medical debt is really important because the data is that half of all collection trade lines, half, the Federal Reserve found are for medical debt. And after the 2003 FACTA amendments, you can't really tell what's medical debt or not because it's supposed to be cloaked or masked on a credit report. So all you'll get is a bunch of trade lines saying, "NCO Collections" or "Portfolio Associate Collections" and you don't know if that's for medical debt or not, so a lot of medical debt shows up on credit reports and that hurts both credit and apparently employment because half of employers that deny job offers based on credit checks have denied it on debt collection, 25 percent of which they also get public records because we know that employers deny job offers based on both lawsuits filed and bankruptcy. Bankruptcy shows up on the public record section of our credit report.

Twenty-five percent of employers that use credit checks, that have denied job offers, have relied on bankruptcies. So the protections, for example, in the bankruptcy code against discrimination on the basis of bankruptcy, don't seem to be doing a lot of help here.

COMMISSIONER FELDBLUM: Right. So let me just -- Because my time is now up. But just noting that the work that Elizabeth Warren has done over the years on this, I mean I know she's gotten publicity now in terms of her current position, but she was a colleague from years ago and her work has really been important.

Just my last question. Do you know of evidence that indicates that people with disabilities have worse credit than people without disabilities? And what do you know about the subject area there?

MS. WU: I cannot say there are any studies on correlation between disability and credit reports. I do know that if you have any sort of disparities on health insurance and medical coverage you'll probably get that translated into a credit report. And actually there's some data from the Brookings Institution that shows lower rates of health insurance coverage means lower credit scores.



Commissioner Lipnic?

COMMISSIONER LIPNIC: Thank you, Madam Chair.

Mr. Eastman, let me ask you a question back to I think what Commissioner Ishimaru was asking at the beginning. Do you have any sense of, in your informal poll of Chamber members that you talked to, how often the employers use the credit history or credit check as the make-or-break decision in an employment action?

MR. EASTMAN: I'm not aware of any case where it's the make decision. When you are in a post offer/pre employment stage, you have an offer, you're ready to hire someone and run the background check and then you discover something, it can be the deciding factor. I do not know how often that occurs. I don't have any data on that.

COMMISSIONER LIPNIC: And can I ask? Ms. Wu, do you have any sense on that? Or do you have any sense of that in terms of in the studies that you've looked at? How often is that used as the make-or-break decision on the employment action, the credit history?

MS. WU: We don't have a lot of data and, in fact, we have even very few anecdotal reports. And I actually think that's because there's a lot of noncompliance with even the notice provisions of the FCRA, because as I said, I look at all the FCRA cases that come out as the author of our Credit Reporting Manual. I see very few cases where employment is involved, and you'd see more because what happens in a situation where credit is used; you're supposed to get a notice saying this was denied to you, credit was denied or employment was denied to you on the basis of information in your credit report; and what happens is a lot of people go and pull their credit reports and then they find inaccuracies, and then they challenge those inaccuracies. That's what happens in the credit arena. Now we don't see a lot of that in the employment arena. And I would theorize that's because they're not -- the perspective employees aren't getting both the notices and the actual credit report. I mean in employment they're supposed to get the actual credit report out. Thousands of people are getting their actual credit reports. In the employment situation, I think we'd see a lot more FCRA cases challenging the accuracy of those reports, not against the employer, but against the credit bureaus, growing out of those adverse action notices. And we haven't.

COMMISSIONER LIPNIC: If there was something that told them their employment decision was being made on that basis?

MS. WU: That's right. I think we'd see a lot more cases where as a result of that, the consumer looks at their credit report and says, "Oh, there's an inaccuracy," challenges it and then they actually bring a case when inaccurate information is not corrected, because that's what we see in the credit arena.


And, Mr. Eastman, I cut you off earlier. Was there -- Did you have another thought there?



And this is for all the panelists. Do any of you have any idea when it is that the use of credit checks in its broadest form became so in vogue in employment situations? I mean is there -- And I think, Ms. Wu, in your testimony you indicated that there has been growth in that and obviously --

MS. WU: Well, there's been growth definitely since the late 1990s. That statistic we have from the Society of Human Resource Management, according to the Brookings study was 19 percent, only 19 percent of employers used it in 1996, and I think as data has become cheaper and more prevalent and it's easier to access data in general, that you've had this growth including credit reports and especially now that you might not need a dedicated terminal, you can have web access.

COMMISSIONER LIPNIC: And presumably as more people have had access to credit, right? I mean, how many solicitations do people get for credit cards all the time? Okay. And also as to -- if the EEOC were to come up with some study that would give us some sense, some better sense, of -- Let me back up. What seems to me that a lot of the studies have dealt with is related to credit scores and how credit scores have impacted individuals whether in the employment context or as to mortgages. And it's my understanding that credit scores are not included as part of a credit history, is that correct?

MR. EASTMAN: That's my understanding.

MS. WU: Well the citation to the studies on credit scoring to show disparate impact; the reason they're cited is because credit scores are supposed to be a translation of the information in a credit score. I mean you don't get a credit score in the 500s without having some derogatory information on your credit report.

COMMISSIONER LIPNIC: But a credit score itself is not something that's part of a "consumer report" or a "credit report." Is that right? That's my understanding.

MS. WU: It can be. I mean definitely when creditors pull reports, you know they often get the score along with the report. We've anecdotally heard of instances of scoring being used by employers. But as I said, the reason we keep talking about credit scores is because, in order to do a study showing disparate impacting you know it's much easier to use the data of the credit score, a number, and match that against demographic data. But that is good evidence because the score is supposed to be a translation of what's in that credit report.

COMMISSIONER LIPNIC: Well, but it would only be good evidence if, in fact, the credit score is being used in the employment decision, right? I mean if it's not being used. Now there may be information that's being rolled up into a credit score at some point later on and used for other purposes, but if it's only employment history or credit history or collections as you've mentioned, if that information is what's available to employers but not the credit score, then it seems to me there would have to be some other basis by which you would use and make an assessment of the information that's on the credit report and how that's being used by the employer in order to do some kind of disparate impact study?

MS. WU: Well, again, the credit score is supposed to be a translation of the credit report. I mean the industry says it's supposed to be a valid translation of that information. And you know consumers don't get credit scores under 600 just because they're max'ed out on their cards. I mean there's got to be some black marks on that, derogatory marks on that credit report. So I think that the statistical information is about credit scores and race is a good indication of the disparate impact.

COMMISSIONER LIPNIC: I see that I'm out of time, but one thing that I would suggest for all of us on the Commission; I think it would be useful if we actually had samples of consumer reports and the information that is provided to employers when they actually get these consumer reports.

Thank you, Madam Chair. Thank you to all of our witnesses.

COMMISSIONER BARKER: (Inaudible) of a credit score and how a credit score is derived as compared to a credit report. Because my understanding is the credit score is a snapshot of how you're doing financially at a particular point, whereas a credit report is back over years. And a credit report would contain different elements that an employer could consider like this debt is bankruptcy, this is divorce, as opposed to a credit score is just a number. So it seems to me that those may be two different animals that we need to learn a little bit more about.

CHAIR BERRIEN: I'm not sure if Ms. Mithal has left already, but I believe there's some information on the FTC website that provides a sample of the report and the contents of the report. She gave a brief overview of that in her testimony. But I'm sure we can make that available.

Commissioner Ishimaru, did you want to use the balance of your time?




All right. I'm going to ask some questions of this panel. First of all, going to the issue of the credit report in whatever form is presented to an employer, there has been some suggestion and testimony that certain types of debt might be more indicative of a potential employment problem or issue than others. But are any of you aware of a report or a format in a credit report where gambling debt could be separately identified?

MS. WU: That's actually a good question because as far as I know I don't know if the casinos per se are what are called subscribers. In other words, they furnish information regularly to the credit bureaus. That's probably a good question for them. I do know that gambling debt in a lot of instances is probably masked by credit card debt. You know, folks with gambling debt, and you can't tell from a report of credit card debt on a credit report what it's for. All it will show is what the balance was on that credit card. You don't even know if the consumer actually pays off their balance every month or is a revolver and carries that balance. So, yeah, I think it's a good question because I think this issue of gambling debt showing up on credit reports is a bit of red herring. I don't think it shows up all that often, if at all.

COMMISSIONER BARKER: Isn't that the whole purpose of the whole interchange, required interchange, between an employer and a respective applicant. If an employer sees that there is huge debt here then he tells the applicant, you know, "I have a concern about this." And that gives the applicant an opportunity to say, "This is a medical debt" or "This is a gambling debt." I think the whole idea is not so much that the employer gets all that information or identity of debt initially. But you know my understanding is a typical employer, if he's gone through this whole process of screening applicants and he's down to two or three he's interested in hiring you. And if he sees the report that has something that bothers him, then typically he's going to say, "You know, I'd love to hire you, but I'm concerned about this. Is there anything you want to share with me?"

CHAIR BERRIEN: I understand the point you're making, but that's actually not my question. My question really is on the face of the report, what information or is there information that would allow an employer to be able to conclude whether a debt was attributable to gambling or whether it was attributable to a student loan repayment issue or whether it was attributable to the need to pay for medical expenses.

You would know that a person owed a certain amount to Visa, some bank's Visa card. But you don't necessarily know from the face of it why and at that point the report itself doesn't verify anything on its face. Is that right?

MS. WU: That's correct. I mean this -- Normally, what you would see with someone with a lot of debts is credit card debt. You know student loans do show up separately. The student lenders are furnishers. I don't know if the casinos are furnishers, but I suspect in a lot of instances someone with a gambling debt is going to show up as credit card debt and you don't know what that credit card debt is for. It could be for anything from groceries to medical bills to car repairs, you don't know what it's for. I think you'd have very small instances of actually being able to tell something is a gambling debt. And you know this whole idea of an exchange between the employer and the employee, I don't think that happens that often. I mean in the few cases we've seen, people just don't get their offers or they get terminated. And certainly there are cases of termination. And often the issue boils down to, they're supposed to get this notice and this copy of their credit report before their adverse action is taken, but they end up getting it at the same time or like a little bit before and there's really not that opportunity. I mean it would be great in an ideal world if that happened, but I don't see that. I don't think that actually happens a lot.

CHAIR BERRIEN: Let me just ask, because Mr. Eastman, the gambling debt issue came up in your testimony and I wanted to know if you had any different information?

MR. EASTMAN: Yes. Thank you for that opportunity. It's an example that I got speaking to an employer and in this case they were considering terminating an employee or referring them to law enforcement for stealing client funds. And so they told me that they did not perform a credit check on this particular individual when they were hired. However, through this investigation, they learned that the individual had had significant debt and they later learned gambling debt. And had they done a credit check, they would have discovered the significant outstanding debt that they then could have probed further.

CHAIR BERRIEN: But not necessarily known the reason why or whether it was --

MR. EASTMAN: They did not say it was disclosed as you know, ABC Casino, right.

CHAIR BERRIEN: And there's also been some testimony this morning and in the written statements about foreclosures, specifically and the impact of foreclosure. And I would like to ask Dr. Jones-DeWeever if you could tell us a bit about your research concerning subprime lending and racial and gender disparities in the distribution of subprime loans?

DR. JONES-DeWEEVER: Sure. I looked at several reports and I've written several reports that I've looked at the race and gender disparities as it relates to the quality of the mortgage product that people received. And overwhelmingly, women and people of color were severely disadvantaged in the mortgage lending market specifically as it relates to women, for example. One-third of women were more likely to receive a subprime loan as compared to only one-quarter of men. So women were much more disproportionately disadvantaged and especially disadvantaged were higher income women and women of color.

In terms of those women whose median earnings were double that of the nation as a whole, they were 46 percent more likely to have received a subprime loan than a man with an identical level of income. Specifically, black women were the demographic group that was most likely to have received a subprime loan.

And so we know that some one in five individuals who received a subprime loan were likely to go into foreclosure. So having access to this sort of toxic product often times would precede the ball going down the hill in terms of landing into foreclosure which we know would result in a negative history on one's credit history. Those things I think are very much linked and show an example of where women and people of color will be very disadvantaged as it relates to this practice.

CHAIR BERRIEN: Mr. Eastman, you mentioned some practices in your testimony that employers have used either once they detect or discern some sort of issue when an employee is on the job as with the gambling debt example that you just cited. But I'd like to hear more about ways other than credit history that employers are able to determine if there's a problem of fraud, misappropriation or misallocation of funds whether it's internal controls, audits or other devices?

MR. EASTMAN: I want to be sure I understand the question properly. Are you asking at the hiring decision moment, or are you asking generally while the individual is employed?

CHAIR BERRIEN: When a person is employed, once the person is employed, not as part of the hiring process.

MR. EASTMAN: Okay. Once the person is employed, there may be any number of mechanisms in place that the employer can use. I mentioned the one insurance services company, for example, that told me they were looking forward to reducing the amount of employees they check credit on because of advances in technology that allow them to control the client funds a little better and monitor what's happening. Clearly for people that have access to that kind of information, excuse me, that kind of finances, then electronic and technological controls are important as is monitoring.

But in many workplaces we're looking at very different structures. For example, employees that rather than having access to cash, have access to controlled substances, there may be other technology in place such as simply video monitoring and things like that. There are ways that employers can use technology to help certainly cut down on employee fraud and inappropriate acts.

CHAIR BERRIEN: And in your written statement you talked about some distinction or potential distinction between debt that was incurred for reasons such as divorce and debt that is incurred for other types of reasons. I wonder if you can share any more with us at this time about why certain types of debt may be viewed as irrelevant to the hiring decision by those employers who are using credit history?

MR. EASTMAN: Sure. And I think the employers I've spoken with realize that most people out there don't have perfect credit. And very often it's very easy for the best well-intentioned people to have very difficult times. And any of us that could be trustworthy, loyal, dedicated employees, might have a difficult time or period that they went through. So employers recognize that. And in my experience they're looking to find out something more than that. Is this just a rough patch someone went through, a medical issue, a divorce, or; is there something more that calls into question this potential employee's ability to represent our company with integrity?

CHAIR BERRIEN: Other than the issues or the areas of types of debt that you identify in your statement, are there any other types of debt that would not trigger or identify it's not triggering? For example, student loan debt, is that favored or disfavored in the information you received?

MR. EASTMAN: Right. And I listed the ones I listed on purpose because I think they're relatively straightforward and there's more of a consensus about those.

When I talk to people about student loan debt, the issue is more, it's not the amount of student loan debt, it's whether it's been paid or is it in payment? Now if it's been unpaid and it's hanging out there, that can be an issue, but for most employers, the amount is irrelevant.

CHAIR BERRIEN: Thank you all.

And, Commissioner Ishimaru, did you have anything to do in the balance of your time?

COMMISSIONER ISHIMARU: One question for Ms. Wu. What about people who don't have credit, people who have not been in the workforce, people who may be in a secondary economy, so they wouldn't show up in the credit reporting system? What's the impact on them by using credit scoring or credit reports in the employment process?

MS. WU: I mean -- to tell you the truth, I don't know how employers -- I mean really a lot of this ends up with the employer and how they use the information. And if the credit check comes back with no information; it probably ends up with the individual employer how they treat that, and I mean a part of the discussion that's been where you get these opposing differences because some folks are assuming that employers are being fair and wise and careful. But our concern is that not all employers are doing that, they're making yes/no quick decisions.


MS. WU: I mean when you have to make a decision between a bunch of candidates or even two highly qualified candidates and the difference is the credit history, well, that's easy to rely on just that factor. And so there may be employers out there who say, "Oh, well, this person doesn't have a credit history, they're not in the system, there's something going on with that," and not extend the job offer. That's certainly a possibility.


CHAIR BERRIEN: I need to follow up quickly on that. Do you have any information, any of the panelists, but I particularly would ask Mr. Eastman, given the nature of your testimony. Do you have any information about how employers treat an applicant's refusal to allow a credit check to be done? As Ms. Mithal said, the employee has to consent, so how is refusal.. --

MR. EASTMAN: I did not prepare for that question in preparation for today's hearing. Certainly, it would not surprise me if employers who had requested consent for any type of background check, if they met resistance to that that would be problematical, but that's purely my assumption.

CHAIR BERRIEN: Ms. Wu, do you have any information?

MS. WU: I don't have a sense of how employers would treat it, but I would suspect that a lot of workers end up signing that form for fear that they won't get the job if they don't consent.

CHAIR BERRIEN: Anything to add?

DR. JONES-DeWEEVER: I would concur with Ms. Wu that it's mostly likely in times like this where you have an overabundance of people seeking employment, they will do what they feel they need to do to get a chance. And then when they don't get that callback unfortunately, I would assume that most people don't know why.

CHAIR BERRIEN: I want to thank the entire panel on behalf of the Commission for both the written testimony that you provided us and for being here today. We will now take a 15 minute break before we continue with the rest of the agenda. Thank you all very much. (Whereupon, a short recess was taken.)

CHAIR BERRIEN: On the record. We will call the meeting back to order.

I'd like to welcome our third panel today beginning with Sarah Crawford from the Lawyers Committee for Civil Rights under Law. Ms. Crawford is Senior Counsel with the Employment Discrimination Project of the Lawyers Committee for Civil Rights under Law, and in this position, Ms. Crawford advocates for worker protections and litigates high impact employment discrimination cases at trial and on appeal. Before joining the committee she worked as an attorney with the Department of Labor's Office of The Solicitor in the Division of Civil Rights. She serves on the Employment Task Force of the Leadership Conference on Civil and Human Rights, and received her undergraduate and law degrees from William and Mary in Williamsburg, Virginia.

Thank you very much for being here.

MS. CRAWFORD: Thank you. It's my pleasure to testify here today about the negative impact of credit checks particularly for communities of color. In light of research showing the lack of predictive value of credit information, credit checks create an unnecessary obstacle for those seeking gainful employment. Credit checks create barriers for those who apply for a job in order to pay their bills, to support themselves and their families and to get out of debt.

Credit checks are becoming an increasingly prevalent practice as we've heard here today. Some employers report that they use credit checks in hiring for all of their positions and some employers report that they do not provide candidates with an opportunity to explain what appears on their credit reports. This practice is particularly troubling in light of research indicating that an individual's credit history does not predict job performance or risk of theft in the workplace.

Contrary to the sales pitch promulgated by credit reporting agencies that profit from selling credit reports to employers, credit reports do not provide meaningful insight into character, responsibility or propensity for theft in the workplace. In fact, a TransUnion official recently admitted, "At this point, we don't have any research to show any statistical correlation between what's in somebody's credit report and their job performance or their likelihood to commit fraud." In fact, research has shown that credit information does not predict job performance.

One recent study looked into the credit reports of nearly 200 current and former employees working in the financial services areas of six companies. Again, that's in the financial services areas. The study revealed that applicants with good credit reports were no more likely to receive positive performance evaluations and were no less likely to be terminated from their jobs. In fact, one aspect of this study revealed that workers with a higher number of late payments actually received higher performance ratings.

While credit reports show whether bills have been paid on time, they do not reflect the circumstances surrounding debts or reasons for late payments. For example, a credit report would not explain that an individual's credit suffered because she was the victim of identity theft, that she went through a divorce or death of a spouse, that she unexpectedly lost a job or lost health care coverage or incurred substantial medical bills. Indeed, credit reports fail to provide context and fail to provide information that can easily be interpreted for employment purposes. Additionally, credit reports often include errors such as out-of-date account balances and inconsistent reporting of bankruptcies and collections.

The medical debts reflected in credit reports raise particular concerns. Medical debt often arises due to circumstances outside of an individual's control and can have a catastrophic impact on personal finances. Medical debts can be impossible to distinguish from other forms of debt listed in the credit report. Although most employers report that they do not base hiring decisions on medical debt, the impact of medical debt can be hidden in outstanding judgments, bankruptcies, foreclosures and other forms of debt that employers do take into consideration.

Indeed, over half of accounting collections arise from medical debts. The impact of medical debt on credit also increases the likelihood of discrimination against persons with disabilities who are more likely to incur medical expenses and also are more likely to live in low income households. Credit background checks negatively and disproportionally impact communities of color and the poor. Unemployment has skyrocketed in recent years and the effects of the recession have fallen most harshly on minorities.

Twenty-five percent of Blacks and Hispanics live in poverty, twenty-five percent. Credit checks only compound this crisis because minorities are significantly more likely to have poor credit. Credit checks screen out disproportionate numbers of minorities from job opportunities. Credit checks also can disproportionately screen out women due to gender differences in earnings, wealth and debt.

A number of states already have enacted legislation to address this troubling practice by limiting employers' use of credit information. And at the federal level, as we all know, Title VII prohibits employers from using a practice that disproportionately screens out a certain group by race, sex or other factors unless the employer has a business need to use the practice.

Employers should not be able to justify using credit checks for most types of positions in light of the research showing that credit information does not predict job performance or risk of theft. I think an important point of discussion also is that even where employers do attempt to show that business need, Title VII requires that employers explore less discriminatory alternatives to credit checks in this case.

In conclusion, misguided reliance on credit checks is based on flawed assumptions that have detrimental effects for those who simply want to work so that they can pay their bills and escape the vicious cycle of debt and unemployment. We urge the EEOC to issue comprehensive guidance on this issue and to increase public education and enforcement efforts to curb the use of invalid credit checks.

Thank you.

CHAIR BERRIEN: Thank you, Ms. Crawford.

And next we'll hear from Ms. Christine Walters, Secretary of the Maryland State Council for the Society for Human Resource Management. Ms. Walters has nearly 25 years of combined experience in Human Resources administration, management, employment law practice and teaching. She's been engaged as an expert witness, testified before U.S. Congressional and state legislative committees and Federal administrative agencies. She was also an adjunct faculty member of the Johns Hopkins University teaching a variety of courses in the graduate, undergraduate and certification level programs from 1999 through 2006. Today, Ms. Walters serves as an independent consultant doing business as FiveL Company, helping leaders limit their liability by learning the law, providing proactive guidance, training programs, education and counsel on employment and human resource issues, policies, procedures and practices for clients across the country and in a variety of industries. Ms. Walters is testifying today in her capacity as Secretary to the Maryland SHRM State Council.

And thank you for being here.

MS. WALTERS: Thank you. Thank you, Chair Berrien, distinguished Commissioners, it's my pleasure to see some of you again and meet some of you for the first time. I am testifying on behalf of SHRM, the world's largest association devoted to human resource management and I thank you for the opportunity to appear before you today.

SHRM believes that employment decisions should be made on the basis of an individual's qualifications, such as education, training, professional experience and demonstrated competence and not on factors that have no bearing on one's ability to perform job related duties. Furthermore, SHRM and its members fully appreciate that the high unemployment rate and overall health of the economy in the U.S. have had a severe impact on countless individuals' credit history as Chair Berrien mentioned earlier.

However, SHRM believes there is a compelling public interest in enabling our nation's employers, whether that employer is government or in the private sector, to assess the skills, abilities and work habits of potential hires. SHRM also believes that background checks can aid employers in that process and can and should be conducted according to the applicable state and federal laws. This includes the Fair Credit Reporting Act which provides job applicants the right to know that he or she may be denied a job as a result of a third party report.

Earlier this year, SHRM released one of the most complete sets of data on employer background screening practices. I will mention just some key findings from the survey here and have attached full survey results to my written statement. In my statement today, I will explain what background information employers currently seek, how and why credit reports are used in the employment process and outline our concerns regarding proposals to eliminate the ability of employers to consider credit information when evaluating applicants for key positions.

At private and public organizations, large and small, HR professionals are responsible for ensuring that each individual hired possesses the knowledge, the skills and the abilities needed for the organization's success. The consequences of making a poor hiring choice can be great.

My written testimony describes in detail how employers consider job applicants during the hiring process. In short, employers typically examine a candidate's résumé to review their work experience, work experience in the same industry, education, certification and other factors to help narrow the applicant pool to those who are most qualified. Once a group of finalists is selected, HR typically conducts a background check which varies depending on the employer and the position in question. The process may include checking previous work history, personal references, education, professional credentials, motor vehicle history, criminal history and, yes, credit history.

A major problem of the current background review process is that past employers are often reluctant to provide an accurate assessment of a former employee's work history, strengths and weaknesses. They fear that an unabridged assessment of a candidate's work background, whether good or bad, could expose them to defamation or retaliation lawsuits from former employees or negligent referral lawsuits from the new employer. As a result, most references only confirm that the candidate had worked for the previous employer, their job title and the dates of employment. This lack of direct complete reference information motivates many employers to seek additional information about the candidate that can be legally obtained through the use of third party background check companies.

Credit history information can be useful in determining whether a candidate has the skills and decision making qualities for a particular job. SHRM survey showed that 40 percent of employers do not run credit checks on any candidates. Another 47 percent do so only for select jobs such as those with financial responsibility and senior executives. Eighty-seven percent of those using credit checks initiate them only after a contingent offer or a job interview.

Employers also have a fiduciary responsibility to safeguard critical assets and sensitive information that belong to employees, customers and the public as well as the organization. If an employee engages in severe misconduct, organizations may face legal actions from customers, shareholders and other employees in the firm in the form of negligent hiring, vicarious liability or other legal claims.

In addition, this relatively limited use, current law protects individuals, and we heard this morning about the Fair Credit Reporting Act, Title VII of the Civil Rights Act and also the Federal Bankruptcy Act. In addition to these legal protections, our survey showed that 87 percent of employers go beyond current law requirements and do allow candidates to explain their credit history as a part of the hiring process. I'll mention SHRM has approximately 240,000 members.

Madam Chair, HR professionals commend the Commission's effort to balance the needs of both the employer and the employees of an organization. I believe employees already have a significant federal protection from the misuse of background checks. I thank you for the invitation to participate in today's meeting and I welcome your questions.

CHAIR BERRIEN: Thank you again, Ms. Walters, for being here.

And finally, we'll turn to Pamela Quigley Devata from the law firm of Seyfarth Shaw LLP. Ms. Devata is a partner in Seyfarth Shaw's Labor and Employment Department where she specializes in employment defense including counseling, training and litigation. Ms. Devata helps employers with all issues relating to discrimination, harassment and retaliation among other issues. During her nine years of legal practice, Ms. Devata has developed a particular emphasis on the Fair Credit Reporting Act that we heard about earlier and state laws affecting background screening. She counsels both employers and providers, resellers and consumer reporting agencies of background information on compliance requirements under the FCRA and related state and local laws, and also provides defense counsel when issues are raised regarding the appropriateness of practices. She is chair of Seyfarth Shaw's FCRA litigation and counseling team and a past member of the board of directors of the National Association of Professional Background Screeners.

Thank you for being here.

MS. DEVATA: Thank you, Madam Chair, distinguished Commissioners. Good morning. My name is Pamela Devata and I'm a partner at the law firm of Seyfarth Shaw. Thank you for the opportunity to testify in this extremely important issue. Today I'd like to focus on three important areas: first, how employers use credit checks, second, why employers use credit checks, and third, the legal protections currently in place for applicants and employees.

There seems to be misperceptions about how employers use credit checks. First, in my experience, overwhelmingly employers do not use credit checks as a litmus test, but rather they use them at the end of a hiring decision. One reason for this may be because, as has been very discussed today, credit scores are not part of an employment credit report. That means that an employer must evaluate a report, a credit report, to determine if the information is negative, positive or neutral. As Ms. Walters just indicated, according to the recent SHRM survey, 87 percent of employers don't even use credit reports until after a conditional offer has been made or an interview has been conducted.

Secondly and importantly, employers generally only conduct credit checks on specific positions related to money handling or personal and confidential information of employees or its customers. In my experience, it is the rare exception and not the norm that employers conduct credit checks on their entire applicant pool.

Third and importantly, employers do not eliminate a candidate merely because they have some debt. Instead, employers look to factors such as is there a pattern and history of debt, were there multiple sources of debt over a long period of time and has the applicant attempted to repay or consolidate debt? And while the FCRA requires employers to give an applicant an opportunity to dispute inaccurate information in the report, most employers give an applicant the ability to actually explain and discuss circumstances surrounding his or her credit report, above and beyond the FCRA.

Employers, including the federal government, have used credit checks for over 40 years. Courts have also held that the use of credit checks serve a legitimate and job-related purpose. In my opinion, the penultimate reason that employers use credit checks is because they can not get information relating to an employee's fiscal judgment, skills or habits from any other source.

It's increasingly difficult for employers to get meaningful reference information other than a person's job title or dates of employment. In my experience, this is because employers providing references are concerned about potentially drawing a defamation or retaliation suit or they're trying to comply with the recent Fact Act regulations regarding furnishers.

There's also a fear of employers of getting fake references. Websites such as and specifically market they will sell fake references and will tell an employer almost anything they want to hear about an applicant. There's clearly a market for these doctored references which is another reason employers seeking to find the most qualified candidates and to determine a person's money-handling abilities, may rely on credit checks. Credit checks also show former employers which an employee or an applicant may not provide on an application.

If there was another source to get this specific type of information towards judgment, skills or ability, it is very likely that the federal government would be using that. They are not doing so.

There are current protections in the law in place for applicants and employees. There has been a lot of discussion about the Fair Credit Reporting Act, something that's near and dear to my heart and that I counsel employers on a daily basis. You heard from the FTC about the provisions and the protections with regard to that statute.

It's very clear that employers, before they can request a credit report, have to get the employee's consent. They also have to certify to the credit bureau or consumer reporting agency the permissible purpose about why they're using the report and that they will not run afoul of any EEO laws or regulations.

Finally, they have to engage in a two-step adverse action process, and I think this is extremely important. There's been a lot of discussion that employers may not tell employees why they were denied employment, specifically if it was based on credit, but that's certainly not my experience. When employers seek a credit report, they leave an informational trail. The request shows up as a soft hit on an applicant's credit report. And as we all know, applicants and any individual is allowed to get a copy of their credit report on an annual basis. And if you space it out, really consumers can get it once every four months from each of the different credit bureaus.

Employers risk federal and state litigation plus FTC enforcement for failing to follow the FCRA with damages equaling actual damages, statutory damages, attorney's fees and punitive damages. Additionally, the Bankruptcy Code makes it illegal for an employer to terminate an individual based on protections in the Bankruptcy Act.

Perhaps the largest protection that consumers have is under Title VII. As we know, Title VII prohibits employers from taking action that have a disparate impact. The analysis turns on whether or not a less discriminatory alternative exists. I have yet to see a study that shows a relationship between the use of credit reports and having a disparate impact on individuals that are minorities. If there were, indeed the federal government would likely be using this.

Thank you for your time today and I welcome your questions.

CHAIR BERRIEN: Thank you Ms. Devata, and now we'll turn to questions from the Commission beginning with Commissioner Ishimaru.

COMMISSIONER ISHIMARU: Great. Thank you, Madam Chair.

Very helpful, especially hearing what employers do and actually do and my questions go along those lines. I'm getting a little confused though and I hope you can help me figure this out.

It sounds like most employers do this at the end of the process. From Mr. Eastman's testimony earlier and from your testimony today that it's not done as a general matter as a screening device at the front end, but it's being done after, either after a conditional offer has been made, or you're down to a few people. And I just want to confirm that that has been the general practice?

MS. WALTERS: From my experience, that's what I've observed. And a factor from what I hear is, it's a fiscal issue. You know, the employer has to pay for every report they get. So I place an ad, I get 100 résumés, applications. I can't afford to pay for a credit report for every applicant. So we'll do some initial screening based on education, minimum qualifications for the job, then maybe do some more screening; so it's in the midst of towards the end of that process.

COMMISSIONER ISHIMARU: But would you do that before you do interviews or would you do it after you've sort of culled it down even further because it is a fiscal issue?

MS. WALTERS: In my experience, it's more often than not and also in SHRM's survey data, at least after an interview, if not after a conditional offer.

COMMISSIONER ISHIMARU: A conditional offer.

MS. WALTERS: An offer is conditioned upon ABC and it may be credit.

COMMISSIONER ISHIMARU: And, Ms. Devata, in your practice have you found employers who have done it at the screening stage?

MS. DEVATA: No. Generally speaking, to your question, it's absolutely done at the end of the hiring process. And frankly, to be candid, employers are struggling with the issue of using credit reports at all specifically because the EEOC has been very involved in its enforcement efforts, for example, the EEOC v. Freeman case. I mean I talk to employers on a daily basis about whether or not they should be using credit reports, how they should be using credit reports and risks and benefits associated with them. And they really are struggling with this issue because on the one hand, for example, if they don't run a credit report, they really have no other way of getting information about that person's judgment or skills or habits with regard to a job that they may be performing. And they may lose money on the outset, versus the risk of potentially defending against a class action lawsuit.

COMMISSIONER ISHIMARU: Could you explain a little more about how it goes to their judgment, that I'm having trouble following?

MS. DEVATA: Sure. Importantly, employers absolutely do not look at the mere fact that an employee has debt. We all have debt or I would say most people have debt. But instead they look to patterns of behavior or habits of behavior. And again, I think shown from the SHRM survey and from my empirical knowledge in counseling employers, employers often talk to a person to determine whether or not the circumstances surrounding the debt, for example, if it was related to medical debt, if it was related to a divorce, if they were unemployed for example. If applicants are attempting to repay debt, that's a positive.

In terms of the judgment though, to the extent that someone is going to be in a financial position or a position that has cash-handling responsibilities or that has requirements and responsibilities for dealing with personal identification information of either internal employees or more specifically clients or customers; there is a question of whether or not that someone has a pattern or a habit of fiscal irresponsibility and whether or not if they can't get their own finances in order, why in the world would an employer have them be in charge of their finances.

COMMISSIONER ISHIMARU: Right, but has that very question of whether you have debt or don't have debt or how you manage your debt, been validated versus people who aren't in that situation? Have there been studies that have looked at that?

I can understand the difficulties people are in when they have debt or they have patterns of debt. But you know to say that those people are more inclined to steal money, to misuse information, versus people who are not in that situation; I'm having a hard time getting that causal connection there.

MS. DEVATA: And what I will tell you is I'm aware of one study that was done that discussed -- and it was a very small study that has been referenced already today -- that related to a person's job performance and their credit reports. What I will tell you is some anecdotal evidence that we see in counseling employers and giving advice on this. There have been numerous times, and one in particular comes to mind which I put in my written testimony. For example, there was a student loan officer who was being hired. The company actually ran a credit report on the individual, found that the person had some substantial debt, including student loans, talked to the person and decided that it still was going to be a good fit.


MS. DEVATA: Hired the person and within six months, that individual attempted to engage in identity theft and perpetrate a financial loan for his own benefit.

So what I would say is that employers who have been burned, for example, in situations where there has been theft or fraud and an investigation has revealed amounts of credit or potential patterns. -- Again, we're not talking about you know one type of debt here or we're not talking about a litmus test that the person is automatically disqualified here. So I think that those companies who have seen this and have been impacted by theft or fraud or embezzlement or identity theft or there's also the risk and fear of potential negligent hiring, that they are more likely to use credit checks albeit at the very end of the hiring process.

COMMISSIONER ISHIMARU: I see my time is up unfortunately, so I will yield back.

Thank you, Madam Chair. Thank you very much.


Commissioner Barker?

COMMISSIONER BARKER: Ms. Devata, you testified that -- there's been a lot of testimony today about credit scores and concern of credit scores being used. And you testified that a credit score was not part of the credit report. Can you explain that to me? What's your basis for saying that?

MS. DEVATA: Absolutely. When an employer requests a credit report from a consumer reporting agency or a credit bureau, they have to certify the permissible purpose for which they're using the report. That is a requirement under the Fair Credit Reporting Act as was discussed. When they state that their permissible purpose is an employment purpose, which they must do frankly, because there is no other permissible purpose under which they're allowed to get that credit report; the credit bureaus process those reports and they're two vastly different types of reports. There are the creditor reports for insurance or lending, for example. And then there are the employment reports that do not have a credit score on them whatsoever. And that's a contractual obligation between the credit bureaus and the proprietary holders of the credit scores themselves.

COMMISSIONER BARKER: So does the Fair Credit Reporting Act prohibit employers from using a credit score or gaining access to a credit score for employment purposes?

MS. DEVATA: No, the Fair Credit Reporting Act is silent on that. But I will tell you in the way that the process works currently, credit bureaus do not give employment reports that have credit scores on them.

COMMISSIONER BARKER: Okay. And I may be asking the wrong person, but do you know what the difference is -- Can you explain the difference between a credit score and how that's formulated? What that represents compared to a credit report?

MS. DEVATA: It's my understanding that a credit score is really a snapshot of a period of time and there are certain factors that go into delineating that score, versus a credit report that gives a longer history of time. It also gives more information with regard to different types of debt that, for example, in the insurance or in the mortgage context in granting credit, something may be very informative, but in an employment context, that may have no bearing whatsoever.

COMMISSIONER BARKER: Just -- I want to be absolutely sure. You know your testimony is that credit scores are not used by employers?

MS. DEVATA: Yes. In my experience I have never seen a credit score on a credit report on an employment credit report. And it's my understanding that credit bureaus will not issue a credit report that has a credit score on it for an employment purpose.

COMMISSIONER BARKER: And you said something about the federal government's use of credit reports. Can you talk to us a little bit about how extensively are they used? Are they used by every agency? Just some agencies? What can you tell us about that?

MS. DEVATA: Sure. The federal government has been -- It's my understanding that they have been using credit reports as a condition of employment. There was a national security directive that was issued and signed by President Bush Sr. on October 21, 1991. And the citation to that is in my written testimony basically stating that the financial status and credit habits of all federal government employees will be reviewed.

In 2005, federal contractors came under scrutiny of certain regulations and security requirements. I believe that Mr. Eastman testified earlier about some specific examples in the Department of Homeland Security and other very specific organizations in the federal government. But I would say as a matter of course, credit checks are used for federal government employees.

COMMISSIONER ISHIMARU: For all jobs versus jobs that require a security clearance. If it came in a national security decision directive, I would guess that it would be limited to jobs that required clearances versus? --

MS. DEVATA: Yes, that's an excellent point. And that's right. Generally speaking, for employees, it does have relationships to the level of security which the person will have. That's correct. I mean obviously there's the NASA v. Nelson case that is up before the Supreme Court currently that just had oral arguments last week that was not dealing with the credit issue but was dealing into background checks. And that argument came up in terms of how far back and what the federal government has done there.

COMMISSIONER BARKER: Do you have any sense of levels? I mean is this like a rare group that has access to your-eyes-only information? Whatever that's called?

COMMISSIONER Lipnic: Top secret?

COMMISSIONER BARKER: Top secret. Thank you. I don't watch enough James Bond.

COMMISSIONER Lipnic: You have one of those clearances.

COMMISSIONER BARKER: I mean… a rare group at the top secret clearances? Or is it -- Do you know how often, to what extent, how pervasive, they're used?

MS. DEVATA: You know I don't. What I do know is it's my understanding that it is not the only top levels of security that credit checks are used for in the federal government.



Commissioner Feldblum?


Well, I have been illuminated here because it seems pretty clear that the reason the credit bureaus are not giving that credit score is they're considering it intellectual property about how they're figuring out that score. They're competing with each other. There is no reason for them to give that score.

But it leads directly to the legal question, Ms. Crawford, that I want to ask you. I want to pick up on Commissioner Lipnic's line of questioning before, noting that some of the studies noting disparate impact statistics were based on credit scores because that's an easy sort of number. And I sort of thought I heard that maybe she was questioning whether that would also be valid for credit report narratives.

Ms. Wu's comment in response seemed right to me that, while we may not be getting the intellectual property of how they come up with the exact number, that credit score is a reflection of what is in the narrative, and if in fact African Americans and Hispanics have lower credit scores; that's presumably maybe because they have more collection items or more late payments.

So my question is, do you think as a legal matter, we need more refined disparate impact studies because it's credit score versus credit narrative? Why or why not?

MS. CRAWFORD: I think this is a field where more research would be valuable. And I think employers should be investigating whether credit information does in fact provide the best way to get --

COMMISSIONER FELDBLUM: You know you're going into job relatedness. So I'm going -- First is about is there disparate impact? Then if there is, then the employees will have to show job relatedness which is the subject of my next question. And then less discriminatory alternative. So I'm just going to the first step, showing disparate impact. You know, is there a problem that the studies that show, the most comprehensive studies that are showing this disparate impact, use credit scores as opposed to the narratives? I'm just saying my gut feeling is that would not invalidate the studies, and I just was curious about your reaction.

MS. CRAWFORD: I would agree that the studies of credit scores are clearly relevant. Credit scores are a tool to synthesize the information that is included in a credit report. And if you look at this sort of information that is being provided to employers, it can be very difficult to interpret for employment purposes.

And one issue that we've raised is whether HR professionals are being trained in how to interpret the complex information that is provided. And in some senses I would suggest it would almost be better if employers had a credit score, because that is aimed at synthesizing the information in an academic way; but I do think that these studies about credit scores and the disparate impact on minorities, in particular, should inform this discussion.

COMMISSIONER FELDBLUM: So, I mean I thought it was very interesting when again as we noted that there are not a lot of FCRA complaints that she's reviewed that says, "I didn't get my notice of adverse action." Right? So there are two possibilities for that. I mean one is that a lot of adverse action was happening and the notices are not being given, that is, there is noncompliance with FCRA. The other possibility is there's no notices because they're not being denied the employment because of that, there is no make or break. I mean we don't know from that fact which of those two is happening.

What we do know and I think what gives us concern as an equal employment opportunity agency is, we've got some situations where, let's say, a bunch of people apply for a job, and they all filled out forms, and they all fill out the check, check, of course, they're consenting to everything. They're desperate to get the job. Fifteen of them get the job, three of them don't. Of those three, two African Americans and one's Hispanic. Some of the 15 that got jobs were also -- And this is I'm talking about just right in the front line. They then said, "Why didn't I get the job?" And they show up at the EEOC office and I've now sat in on three intakes. I just want to get a sense of what is it like right at the first moment. And the people are coming in, they really -- they just know that it's not fair and it doesn't seem right and they come to the EEOC office whether it's about discrimination or not. But they'll start talking. And then through the investigation it sort of comes up that, "Well, we had to fill out this form, and then there was the credit check." Okay. So it's anecdotal from the other side. I mean this is -- But because we have some of those anecdotal evidence of that happening front line, here is the main question I want to ask actually both to Christine and to Pamela. All the stuff in your testimony, Pamela and Christine, about we need this in order to have the judgment about people handling money. I get that. Okay. Putting that aside, if you do then say -- and this I'm quoting from yours, Pamela -- "Additionally, some employers believe that putting applicants with poor credit in positions with access to large sums of money or merchandise, may create unnecessary risk of fraud or theft." Okay. Like that's another reason which sounds very much like reason number three that Dr. Aamodt, who will be testifying next, noted he is seeing "a belief that employees who are in financial distress might have an increased likelihood to steal or accept bribes." And Dr. Aamodt follows that by saying "I am not aware of any research on this topic that would support or refute this belief."

The citation, Pamela, in your testimony for your sense of many employees believe additionally was from this report from the Association of Fraud Certified Examiners that "financial pressures are a 'key motivating factor' behind check tampering, theft and fraudulent reimbursement." So I guess what I'm wondering is do you consider the report from that Association of Certified Fraud Examiners to be evidence that supports that belief from employers? That is, would you say to Dr. Aamodt -- I'm assuming you could turn around and say to him, "Yes, there is research that supports this belief" -- or would you say, "No, that's doesn't support?"

MS. DEVATA: I think that the study that I cited from the Association of Certified Fraud Examiners, I cited the 2010 study. There's also a 2008 study that found similar results. But I would say that at least in an employer's viewpoint, that that would absolutely would contribute to the risk that that employee could potentially engage in theft or fraud or have a greater propensity to engage in theft or fraud. And again I think that it's extremely important to understand that this is not being used at the front end. And so --

COMMISSIONER FELDBLUM: No, I'm asking you for this purpose, now this line of questioning --


COMMISSIONER FELDBLUM: -- to assume that there might be some employers that are doing it. I recognize and one of my questions and I'll do it later that you can then submit for the record is getting a sense of how many of your clients that you counsel are actually having a lot of these front line, low-wage, low income employees just so I --

But I'm asking you for this purpose of questioning, assume that we're talking about some employers that might think that and that might be using it on the front line. Because you see what it seems to me is, I get it that among people who steal, a motivating factor is financial distress. I mean I can get that, but that doesn't seem to answer the issue here, right? Because if, in fact, not everyone who has financial distress will steal -- the research shows that -- and if there's a disparate impact to minorities not getting jobs based on the fact that they are statistically more likely to be in financial distress and therefore more likely to have those collections; then doesn't the employer have an obligation to see if there's some other less discriminatory mechanism from the point of disparate impact? And I'm not doing this on the line of in terms of handling money, fiduciary duty, etc. You know, I'm handling this from. and I'm looking at this because, Christine, from your thing of the retail industry lost $14 billion in theft in 2009, right.

I'm curious. Is that theft from merchandise? Can we find out how much of that is theft from merchandise versus high level financial manipulations? And if it is from merchandise, then what they're concerned about is theft, just pure out theft, not judgment, none whatever, pure out theft. And then my question is, if you've got a discriminatory impact, isn't a less discriminatory alternative, to have very good cameras in stopping theft and I mean just something.

So again, this is all going on the assumption that there is at least some group of companies that are using this as a front line as a way of weeding out and then I'll let you answer and my time will be up.

MS. DEVATA: Generally I would assert that job-relatedness is an extremely important issue when measuring the use of credit reports in employment. And to the extent that employers believe that credit reports or certain information in credit reports would be job-related to specific positions -- again, I would have to say that you need to look at those specific positions to see if there is job-relatedness or not, which is a very difficult analysis that employers deal with every day as you noted. And in terms of this survey, I do think that that would give some credibility to employers who have those judgments and who make those determinations.

In my experience, that hasn't been the case and really employers are not doing that. But to your question, certainly if a disparate impact was shown, based on employers using credit information in the credit reports, which again I don't think there's been a study that has shown that, and I would assert there perhaps should be; that we should get some more information on that, then, yes, there would need to be an analysis of, is there a less burdensome means to get that same information. And, of course, in the theft and fraud area, I think that's exactly right. There are certain technologies you can look at. Criminal backgrounds, for example, a topic for another day, you could look at security cameras, etc.

COMMISSIONER FELDBLUM: Madam Chair, can Christine answer this?

CHAIR BERRIEN: Or either of the others.


MS. WALTERS: I appreciate the question. It's actually exactly what we were discussing during the break and prior to this hearing. I think there are two sets of data and I look forward to the testimony from the next panel because I think one question is, of all the people who have slow or bad -- and what's bad credit -- how do we define that? Slow, bad, whatever we're calling it, of that large population, what percentage have engaged in workplace fraud, theft, misappropriation, embezzlement? I suspect -- I don't know – I suspect it's a very, very small percentage.

Second question. When we look at the population of every employee who is engaged in workplace, fraud, theft, embezzlement, what percentage of those have had slow or bad credit? Again I don't know, but I suspect the percentage is much higher.

What I think we all are struggling with is, and I hear the passion and the compassion with regard to adverse impact, and I think that's what we are trying to figure out is, how do we balance those interests? How does the employer say, "You know? I don't want to have to wait until there's a bad act to then be able to do something. I want to try and prevent it up front and protect my clients and members and property." So it's a tough, tough balancing act.

The other thing I'll share, you always try to think of analogies and I also hear the frustration of, "How dare an employer? Are you presuming? Just because I have slow or bad credit, that I'm going to steal from you?" That's highly offensive analogy.

And I hail from Maryland. So my own state, like many states recent, a few years ago, passed Social Security Number Privacy Act. And that Act basically prohibits employers from displaying or printing an employee's Social Security number on payroll wage records and related documents.

Now in that process, in the legislative process, I heard some similar "how dare you, "Just because I work in payroll or accounting, you think I'm going to steal somebody's identity?" And the response I hear was similar. "No, that's not the presumption." But is it reasonable as a proactive, preventive measure to reduce the possibility even if it's small?--

COMMISSIONER FELDBLUM: Yeah, but they're not losing their job.

MS. WALTERS: I agree.

COMMISSIONER FELDBLUM: It's a cost benefit. Okay.

MS. WALTERS: So not a fabulous analogy, but an analogy in the employment context, so it's, yes.

CHAIR BERRIEN: Ms. Crawford, did you have any more to add?

MS. CRAWFORD: You know, I think that the lack of research is particularly troubling to justify this practice in light of the fact that it's pretty clear that this practice will have a disparate impact. So I also look forward to hearing from the next panel.


Commissioner Lipnic?

COMMISSIONER LIPNIC: Thank you, Madam Chair.

Ms. Walters, just so I'm clear about the SHRM data. Has the SHRM data showed that there has been increased use of credit background checks?

MS. WALTERS: Thank you for the question because I know there's been some different comments on that. From 2006 to 2010, the answer is no. It's varied, actually dropped by one percent in the reporting.

In 2006, SHRM's run a series of surveys, so there were surveys prior to '06. And then there was a survey in '06 and another survey in 2010. And the methodology changed as the questions that were asked changed. So, for an apples-to-apples comparison, the questions asked in the 2006 and 2010 surveys were the same. And the question asking, "Do you use credit checks or credit information," 61 percent responded yes, either all or in part in 2006 and 60 percent responded, yes, in 2010.

The surveys prior to that with different numbers the question was asked differently. So I think we get into statistical reliability and validity and that kind of thing.

COMMISSIONER LIPNIC: And did those studies take -- If there's been a drop, does that take into account the increased unemployment? So less hirings? So less use of credit scores?

MS. WALTERS: It's such a small percentage. I'm not -- Yeah.


MS. WALTERS: I think --

COMMISSIONER LIPNIC: Not credit scores. Definitely not credit scores.



MS. WALTERS: There is a mention of technology. I think that could be a factor. We have heard from some members that they have actually stopped using credit information because they now have technology by which they can monitor cashiers, bank tellers, so it's back to that, it's less adverse impact, I might not prevent it, but I'm probably going to get it pretty quickly and close to when it happens, so a lot of factors.


Ms. Devata, Ms. Crawford said earlier that she thought it would almost be better if employers actually have credit scores and then apparently make some decision based on the credit score. Do you agree with that?

MS. DEVATA: I don't, and the reason why is because a couple reasons. Number one, it's my understanding that credit scores are contemplated and factored for a different reason than employment, first and foremost. And secondly, I think it would be very difficult to come up with a scoring mechanism that could contemplate each and every job that an employer might be evaluating credit for. For example, someone who has large cash-handling responsibilities, different factors may be at play versus someone who is working in an IT department and has access to customers' and employees' personal identification information. There may be different factors on the credit report that may be important to the employer. And I don't necessarily know how a number would be able to characterize those nuances and differences.

COMMISSIONER LIPNIC: Okay. And Ms. Crawford also said that she thought that credit reports failed to provide context. So can you explain in your counseling with employers what they do with this credit report and the issue of context?

MS. DEVATA: Sure. Most often in my experience, when an employer gets a credit report, they really pour over it because they're challenging to read and they have a lot of different trade lines and there's no magic score or number. And so they look at things and evaluate to see if things are negative, positive or neutral.

If they determine that there is potentially negative information that may be job related to the position for which the person is applying, in part and parcel with their Fair Credit Reporting Act obligations to give the pre-adverse action notification, instead of merely shipping off the report and saying, "Look, if you dispute the errors let me know in five business days and I'll take adverse action." Because they use this type of screening mechanism at the end of employment, they want to hire the person; they've made a decision and often given a conditional offer of employment to the individual. And they often times, and more often than not frankly, sit down and have a dialogue with the person, "What was this from?" And I will tell you in my experience if anything has to do with medical debt, if it has to do with, "I was unemployed and my husband lost his job, and this happened to me," or some catastrophic event, personal event in the person's life, generally speaking, employers are people, too. And I think they take that into consideration.

COMMISSIONER LIPNIC: And this is a question for actually everyone on the panel. For employers to -- What's the cost benefit analysis for the employers in terms of using the credit report versus potentially having this Commission show up at your door and in the face of a complaint and have the cost of defending that? What's the point of using them at this point? And I'm interested in everyone's comments.

Ms. Crawford?

MS. CRAWFORD: Well, that's my question as well?

COMMISSIONER LIPNIC: But I want you to give me an answer.

MS. CRAWFORD: You know I think we can all agree, sitting on this panel that employers want to use legitimate, valid, nondiscriminatory screening devices to select the best employees. And what research I have seen, tends to suggest that credit history provides not a whole lot more information than flipping a coin. And no employer wants to select employees based on that method.

Anecdotally, just to give a contrasting perspective, we've talked to some folks who were aware that the employer was conducting a credit check. An offer was rescinded and in follow-up conversations, major national employers have suggested we don't disclose the reason we don't hire people. And a significant portion of employers also suggest that they don't provide that opportunity for an individual to explain a cause of something in their credit report. So there are two sides to this story here.

MS. WALTERS: From what I see and from what I hear and I guess my own personal experience when I was an in-house HR practitioner, I guess I have multiple answers to your question. It's cost of doing business like an insurance policy. We may never have a flood, a hurricane or tornado, but I'm going to have insurance just on the off-chance to avoid that loss. I may never have employee theft, but just on the off-chance, I want the opportunity to use this as one of many indicators of who might be the most qualified candidate for this job.

And there's a lot of -- I hear a lot of little stories. Employees who were issued company credit cards and then there's a periodic audit and employers maybe should be more proactive and they realize for the last six months, I've heard stories of a whole lot of gas station charges, much more gasoline than is needed to fill the one company car that the employee should be driving. So there's a discussion and the employee says, "Well, yeah, I've been using it at home." Charges at Walmart and Kmart and, I don't want to single out any particular stores, for things that the employer doesn't understand, "What would they be buying there on a company credit card?" There's a dialogue with the employee and, "Oh, well, I was short so I had to buy some baby supplies."

So sometimes it's just a little something, and sometimes it's thousands and thousands of dollars. And a lot of the companies that I work with are smaller employers, so $2,000 to $5,000 is huge for them, so again it's all a balancing act. I don't hear employers saying, "Because you have bad credit, you cannot work for my company." What I hear them saying is, grade point average, years of experience, industry in which you have your work experience. All these things -- it's kind of like the credit score, right? Credit score we've said is comprised of and calculated with many, many, many factors, so I think the decision of which candidate to hire is comprised of many, many, many factors, and credit may be one.


MS. DEVATA: I think that employers are struggling to get good information, the reference piece is very compelling to me. You know, the fact that there are these fake websites out there that market truly that they are fake references. I think that employers struggle because they really do want to hire the most qualified individual for the job who has the greatest experience and who frankly will be able to protect their employees and also protect the customers. I think employers feel like they have a fiduciary responsibility to their customers and to their employees to make sure that their company is financially stable frankly. And I think the risk as we discussed before is, if they can't get information from any other source, and this is one piece of the great puzzle, then this is potentially a relevant factor for certain jobs and certain positions depending on those responsibilities.

COMMISSIONER LIPNIC: And I'm assuming job-relatedness for the use of them in all of your answers?


COMMISSIONER LIPNIC: Thank you, Madam Chair.

CHAIR BERRIEN: Thank you. I have a few questions for the panel.

Ms. Devata, in your testimony you several times refer to the need or possible interest of employers in having this information because they can't get information from other sources. And in an earlier round of questions, one of the other Commissioners asked about people who have no credit history. There are such people, correct? If you don't have the kinds of debts that are reported to credit agencies, there would not necessarily be any record even if you allowed an employer to request it. Do you have any -- How would that be viewed? And if that information is missing, what would your counsel be to your clients or to employers about how they ought to proceed in a hiring decision?

MS. DEVATA: That's occurred one time in my years of practice and truly the employer called and said, "What does this mean? Does this mean identity theft? What does this mean? I don't know what this means." And I counseled and the employer was actually planning on doing this, to treat it as a neutral. I mean at that point it's not positive and it's not negative. It means that the person has not been issued credit for whatever reason. And I would still counsel that today to treat that as a neutral.

CHAIR BERRIEN: Ms. Walters, has SHRM addressed that issue at all in terms of any guidance to its members?

MS. WALTERS: Not that I'm aware of. The only scenario, and we had a little bit of discussion about that, I haven't personally come across it. The only instance I can think of at this time where it might be relevant, is if I'm applying for the position of credit counselor or financial counselor where in order for me to advise you and provide a professional service to consult on how to manage your credit, it's probably very job related that I have experience in doing that. And if I've never been issued credit, that may be a factor there. But other than that, my response would be the same, it's absence of information, so it's not bad, it's not adverse, so I think it would be a non-factor.

CHAIR BERRIEN: And would you -- some might say it would follow that if a person chose not to allow the employer to acquire, so there's an absence of information. Would you treat that similarly or would you counsel differently?

MS. WALTERS: Good question. I would not treat that similarly. I think proactively seeking information and prohibiting my ability to do that as an employer are too very different things. So I want to try to take reasonable measures to again, this whole pot of factors to assess the most qualified candidate, if there is a factor missing; I think that's very different in nature from prohibiting the employer from being able to seek that information.


MS. DEVATA: I agree.

CHAIR BERRIEN: It's also come up in several statements of witnesses today that one of the possibilities if there is a credit report, if the employer receives a credit report that has some sort of adverse information on it would be to follow up in some way with the employee or the potential employee and inquire further. But at least two of the areas that have been identified, debt incurred because of divorce or in relation to divorce, and financial hardship associated with it, and debt related to medical expenses; could bring an employer into a very difficult context of potentially illegal inquiries, would you agree?

MS. DEVATA: I would, but I would tell you in my experience, if an employer learns that something had to do with medical debt, for example, or marital status -- and again we're getting towards protected categories here -- employers stop and say, "Thank you very much, I don't need to know anything else." They don't -- It's much like a job interview, we call it opening the door. You know, some applicants like to talk more than others and frankly like to tell you things that as an employer you don't really want to know. And at that point in time you say, "Thank you very much, but we don't take whatever that protected category is into consideration in making our employment decision" and you shut that door.

Much like that, I think that having the dialogue frankly is more important than making a knee-jerk reaction. But I do understand that there is some risk there, so employers need to be cautious about that.

CHAIR BERRIEN: And is that something that you think is useful to provide guidance about up front given how close the line is frankly?

MS. DEVATA: Certainly.

CHAIR BERRIEN: And, Ms. Walters, similarly, has SHRM encountered that question from any of its members? Or do you have any guidance of best practices that you would recommend or have recommended to your members about avoiding impermissible inquiries?

MS. WALTERS: Again, not of which I'm aware. What comes to mind is, I think asking -- and this is a very fair question, because we do get tripped up again trying to balance, "Well, you didn't engage me in a dialogue and you didn't find out what my story was." "Yeah, but if I ask you certain questions, I might get in trouble." So guidance I think would be wonderful. And I think just asking. And that's what I hear a lot of times, employers laughingly perhaps will say, "I just got the report back and there's slow or bad credit on it. Can I call them and ask them about it?" "Oh my goodness, of course, absolutely." Open the door and it may be a proactive practice. I'll shy from best practice because I think that will vary from employer to employer, but to simply ask, "It's come to our attention that there's some slow or bad credit on your report," is there anything that you'd like to explain to us about that? Rather than, "I don't want to ask you, "Were you recently divorced? Did you recently have an illness?" So that's, I guess, what comes to mind right now.

CHAIR BERRIEN: Ms. Crawford, do you want to add anything on this point?

MS. CRAWFORD: Well, I think this particular question raises the point of what an invasion of privacy these reports can be to what we're talking about here in terms of medical debts and death of a spouse and divorce and those sorts of issues. Those have or can have tremendous impact on debt. But at the same time they're the kinds of things job applicants may not want to be discussing with a potential employer. And then my question is, what if the candidate says, "I really don't feel comfortable talking about the death of my spouse" or "my major medical illness that has resulted in this debt." So I think your question is a good one and guidance is needed.

MS. DEVATA: Madam Chair, if I may, there is a pending bill currently in legislation to amend the Fair Credit Reporting Act to prohibit the use of medical debt, just to note that that is pending in the legislature currently.

COMMISSIONER FELDBLUM: Separate and apart from the overall Equal Employment -- the one that goes to credit checks?

MS. DEVATA: Correct, separate and apart from the HR3149, yes.

COMMISSIONER FELDBLUM: And who has introduced that bill?

MS. DEVATA: You know, I don't recall.


CHAIR BERRIEN: Ms. Crawford, in your testimony, you had indicated that -- you talked some about the states that have begun to look at this issue. And I'd like to invite you first, but if others have more to add I'll hear it as well. Is there any experience yet in those states with what employers are doing instead of credit checks to address some of the concerns that various witnesses have raised today about insuring that employers and the public have adequate protection?

MS. CRAWFORD: Well, certain states have required that employers need to have not only a substantial business need to conduct the credit check, but also must explain that substantial business need up front to the employee for that particular job, which I think is an interesting development; because it requires employers to do their homework and not conduct these blanket screens for all of their employees, and puts the job candidates on notice of why the credit check is being conducted. But we've seen laws that are requiring employers to curb use of credit checks unless they can show that business need in a number of states including Washington, Hawaii, Oregon. Illinois recently passed a law along those lines.

CHAIR BERRIEN: Anyone else want to add anything on this point?

MS. DEVATA: The only point that I would say is, out of those four states and those are the only four states that have passed laws. There have been a lot of laws that have been pending. There have been some numerous vetos of certain laws as well, but all of those do have a job-relatedness requirement. For example, the law in Illinois, that's going into effect January 1, 2011, has seven specific exceptions from when an employer can use credit as a basis of employment. And some of those are everything that we've been talking about today, if they have access to confidential information, if they're a high level executive, if they have large monetary spending. And I believe that Oregon, Washington and Hawaii are very similar to that Illinois bill as well.

CHAIR BERRIEN: I want to thank all members of this panel for the information you've shared with us this afternoon. Yes, it is now afternoon.

And we will turn now to our final panel.

(Chorus of thank yous.)

CHAIR BERRIEN: Okay, for our final panel, we will take, hear in turn from Dr. Michael Aamodt from DCI Consulting Group. I'll introduce Dr. Aamodt now. And thank you, Dr. Aamodt, for coming in today.

Dr. Aamodt is Principal Consultant for DCI Consulting Group where he conducts salary equity analyses, analyzes adverse impact statistics and helps develop employee selection systems for federal contractors and others. Before working for DCI, Dr. Aamodt spent 26 years as a professor of Industrial Organizational Psychology at Radford University where he coordinated the IO. And I'm going to have to ask you?

DR. AAMODT: Industrial Organization Psychology.

CHAIR BERRIEN: Industrial Organization masters degree program. He's published several books in human resource management area, over 50 research articles and book chapters and presented over 100 papers at professional conferences. He received his Bachelors of Arts in Psychology from Pepperdine University and both masters and doctorate degrees from the University of Arkansas.

Thank you for joining us today, Doctor.

DR. AAMODT: I would like to thank the Commission for allowing me to speak this afternoon to the Commission.

Let me say up front that I don't have any vested interest in whether or not organizations use credit checks or not. I view my role here as to kind of provide an objective view of what the limited amount of research says about the validity of reference checks.

Now the prior witnesses have done a wonderful job stating some of the things I was going to talk about and so with the permission of the Commission, what I'd like to do is kind of pull away a little bit from the remarks and jump into probably what you would want to hear.

I think the first place I need to start is just really talk a little bit about why organizations use credit checks, because the reason that they use the credit check to some extent is going to determine the way the validity study might be conducted and what the results are going to be. And if you look at the research, there are probably three major reasons why an employer might use a credit check.

The first one that was talked about quite a bit today, this morning, is that they think that employees or applicants with poor credit history are more likely to steal. And in the research I've done in terms of trying to find studies, I wasn't able to find any studies as the Commissioner mentioned that really addressed that. And that's a shame because that's kind of the key point I think in terms of what we're talking about today. But again the key thing for them is they think the bad credit history is going to result in an increased chance of theft.

The second reason I think is a little bit more intriguing and maybe one where I have some research, so I can talk about it toward the end of my remarks. It is that an organization will think that a person with poor credit history, it's not so much that they're more likely to steal, but instead that it shows a lack of responsibility, a lack of conscientiousness, and they're going to think that because they have these personality traits, they're not going to be as good an employee. And I'll talk a little bit about some of the research that might tap that.

And a third reason is one that you don't see as often but comes from some interesting research literature on financial counseling where it's essentially saying that employees who have a lot of debt are going to be under financial stress and that stress is going to carry over into the workplace, and that they're more likely to miss work, they're not going to be as productive; and I think if we look at the research from industrial psychology, we see that any kind of stress, whether it's marital stress or health stress or financial stress, we know that people that are stressed are going to have problems at work and miss more work. So that's a very different issue from the other two that we're talking about. But these I think are the three issues that we typically see.

Now in reviewing the research on the validity, because that's what I was asked to do. The first thing I want to say is that there's very little research on the topic. So I think that's important to keep in mind as I try to summarize what we're going to see.

There were five studies that I found that related directly to credit history. And remember it's not the credit score, that's already been established. It's going to really be credit history. Three of those involve law enforcement positions, so that's again very different. And then you have one that involved financial employees and another one that really involved office and clerical employees. So it's very different.

I was able to also find five other studies that really related to financial distress. So really it was a little bit off target, but it kind of relates to one of the points. And what those studies did was they asked employees how much money do you owe, how stressed do you feel because of the amount of money that you owe and then they asked them to indicate how often they missed work and in one study what their self-reported performance was? And I'm going to address those separately because it's a very different group of literature.

But basically what I did was, take these studies that were out there and combine it, kind of shove them together with a statistical technique that's called meta-analysis. Now normally, when you conduct a meta-analysis, you have 50 studies, 100 studies, 200 studies. So even though I can use the same techniques to kind of come up with a conclusion remember, we're talking about combining five studies, we're not talking about hundreds of studies on a topic.

And if we break down the studies in terms of what they looked at, five of the studies looked at something that we can call counterproductive work behaviors. They might be things such as discipline problems; they could be terminated for cause. And if we look at those five studies, what we get is, again combined, is we get a correlation of 0.13 between credit history and these counterproductive work behaviors. That correlation is statistically significant, but it's low.

And when we talk about something being statistically significant, all we mean is, we don't think it occurred by chance. And if something is statistically significant, it gives us the right to talk about it, but it doesn't mean it's big or large or small. We have to interpret what that 0.13 means. But it means that we feel that it didn't occur by chance.

If we look at performance ratings, there are only three studies that looked at performance ratings, and the correlation was 0.07, which was not statistically significant. So just in terms of performance, we're not seeing much there. And if we really concentrate on those five studies, plus one other study that kind of addressed the issue, and looked at absentee-ism; we see a correlation there of about 0.21, which is statistically significant and at the level that we start to kind of take seriously. But again, you've got to remember that this is looking at people who are saying how financially distressed do I feel and how does that relate to my performance or to my absentee-ism, and again I think that's very different. I think as employers we're not going to say, if you have marital stress and financial stress and all those other kinds of stress, we don't want you, so it's a different issue.

So, I think my conclusion really is, based on that small amount of research, is that we have these statistically significant correlations with counterproductive work behavior, but it's small. With performance we've got three studies, not much really happening there. And you hate to have the conclusion of, we need to hear more research, but that's all we've got. And so it's hard to put much more emphasis on that little bit of research other than that.

CHAIR BERRIEN: Thank you, Dr. Aamodt.

And the second member of this panel and our last panelist for the day is Dr. Richard Tonowski. He's the Chief Psychologist for the EEOC. Dr. Tonowski joined the EEOC in 2001 as a psychologist and worked as Assistant HR Director for Strategic Policy and Planning between 2003 and 2006, and then became our Chief Psychologist. In that role, he's reviewed test validation documentation, conducted statistical analyses regarding employment practices and consulted with EEOC attorneys and investigators. Before his tenure with the EEOC, he worked for more than 20 years on public sector test development and validation, performance appraisal, employee surveys, diversity management and labor relations. He's also had experience in providing written and oral testimony as an expert witness in court and in federal sector hearings and hearings before the Merit Systems Protection Board. He received his Ph.D. in Psychology from Rutgers University, is certified as a Senior Professional in Human Resources by the credentialing affiliate of the Society for Human Resource Management, is an adjunct associate professor of human resource management and development at the University of Maryland-University College and teaches a graduate course there.

Thank you, Dr. Tonowski.

DR. TONOWSKI: Thank you, Madam Chair, Commissioners, Counsels. I have the privilege of summarizing what these distinguished presenters have told us today and also adding my voice and recognition of Commissioner Miller.

We've heard a lot of important questions today affecting employment opportunity. I think today's presentations establish that we understand some issues, but there is a lack of theory and data that would give us a complete picture. Here are some of the issues and some tentative answers.

Does use of credit history have the potential for unlawful discrimination? We have heard that there are differences in credit ratings across race and ethnic groups, and these differences may be compounded for women. There are differences across groups having well-paying jobs and having insurance to cushion catastrophic financial impact, thus increasing the probability of lower credit rating and higher indebtedness. Some of these concerns could also apply to people with disabilities who have no credit at all.

However, we have also heard that while most employers assess credit history in some way, it is not the same way and not for all jobs. Most are not interested or not able to obtain a credit score. Practices may vary according to the type of financial information sought; the exclusion of items outside applicant's control, such as medical expenses; the time period preceding the employment application for that information; when in the selection process the information is used; and consideration of the applicant's explanation for negative information.

Regarding potential applicants, we have no data on who may be deterred from even applying for a job because of credit history. Accordingly, gross demographic statistics regarding credit ratings may not be informative, but there does not seem to be any better data available.

Why do employers look at credit history, how useful is the information, and what are the alternative information sources?

Identify productive employees. There is very little evidence of that. Presumably directly considering job-relevant competencies would satisfy the need, and we have mechanisms with a better track record for doing that.

Identify reliable employees. Reliability can include faithfully showing up for work and attending to the job, and also refraining from disruptive or dishonest behavior. A lack of reliability might be mediated by the stress caused by one's financial situation.

We heard that there is some evidence that credit history may correlate with these considerations. Similar results may be obtained through personality tests or their close cousins, integrity tests. And current conventional wisdom is that these tests are generally free of adverse impact regarding any protected class.

However, more recent research and the enforcement activity of this agency are moving toward a less optimistic view. Also, these tests tend to screen out people who tend to be careless in aspects of their employment. They may not do much to screen out people who would engage in calculated criminal activity.

Confirm employment history. We heard the problem of getting accurate information on applicants. And some of this can be provided through getting a credit background check. But it would seem like this is not necessarily involving the use of financial information. Rather, this information could be obtained from background screening providers without actually providing the applicant's financial details.

Identify those with incentive for major fraud or theft. Well, the problem here is that fortunately these kinds of activities are rare and so therefore it's very hard to do a study. We have been shown that aspects of poor credit history can often be seen in the background of the perpetrators, but we know this only after the crooks are caught. We seem not to have good data on employees with similar financial need, but who successfully restrain their greed.

The issue of false positives when assessing for infrequent events means that people who would have been good employees are screened out to an unknown extent. We apparently have no standard way to assess risk; and we've seen that employers would have an interest in minimizing risk where a single event could be catastrophic. The potential for catastrophic loss due directly to fraud or theft, or indirectly to negligent hiring suits, may not be confined to specific firms, or to specific industries; but may be confined to specific jobs.

Also mentioned was the role of security and monitoring systems that would play a role in deterring even those easily tempted. The need for conducting credit checks depends on the opportunity for wrongdoing on the job. These security measures obviously have a role in determining that need.

Another consideration though is that even with credit checks, the system is fallible. We have an issue of trying to find an optimal balance between background checks and security measures, both fallible systems, and we just don't have enough information about how they work.

Our knowledge is incomplete, but the presentations today have provided a start for assessing the impact of credit checks on equal employment opportunity and their responsible use by employers.

Thank you.

CHAIR BERRIEN: Thank you, Dr. Tonowski.

I'm going to open the questions now beginning with Commissioner Ishimaru.

COMMISSIONER ISHIMARU: Thank you, Madam Chair.

I just want to make sure that I understand the whole notion of meta-analysis and being a lawyer and not a social scientist, I'm assuming that what you do in meta-analysis is to get studies that have already been done and you combine them into one study, and you try to come up with a pattern and try to judge all these studies in the universe of whatever the universe is.

Using the numbers that you lay out here in your testimony, Doctor, I'm assuming that zero means there's no correlation. What's the high end of the correlation? Is it one?

DR. AAMODT: The high end is one. Correct.

COMMISSIONER ISHIMARU: Okay. So it's statistically significant if it's under ten percent. You know, where do you reach that statistical significance level? Can you lay it out in nonstatistical terms?

DR. AAMODT: I hope so. I think when you're looking at correlations, you have to look at two different terms. Okay. One is going to be statistical significance and the other is practical significance.

Statistical significance takes into account two things. One is, for example, how large is your correlation, but also how much of a sample size do you have? The greater your sample size, the smaller the correlation it takes to be statistically significant. So when we talk about statistical significance, you can have a very low correlation that's statistically significant, because you have a huge sample size.

The practical significance is, okay, now that we're allowed to talk about it because it's statistically significant, do we care? Is it big enough for something that we're going to use? And so the statistical part is just almost pure sample size. Practical is I think the issue that you're addressing.


DR. TONOWSKI: Yes. I would agree with Dr. Aamodt. I take statistical significance seriously because it does give us the basis for doing something to talk about. But statistical significance is not the same thing as practical significance.

And particularly in this situation over here where we have so few studies going into that meta-analysis for reasons Dr. Aamodt mentioned; we are dealing with studies which may be a bit idiosyncratic, not that they're bad studies.


DR. TONOWSKI: But they're studies which have very low correlations to begin with, and now we're trying to draw conclusions as to how they generalize elsewhere, that's dangerous.

COMMISSIONER ISHIMARU: Right. So if you were going to create your own study to validate this, how hard would it be? Is this possible to validate a practice, you know, assuming that the practice causes a disparate impact? Is it possible to come up with a validation study for it?

DR. AAMODT: It would depend on again the reason why you're doing it. If we're talking about that we think that people with low credit, for example, less conscientiousness, that would be an easier study to do than one where we think people with low credit are going to steal. Because if we're talking about stealing, we're going to have to data from probably hundreds of thousands of employees because theft is a low base rate. We're going to have to agree on how we're going to score these darn credit histories. Because again if it's a credit score, we've got a number, but we don't have that, so we're going to have to determine how we're going to score these things. So the theft part would be very, very difficult to pull off and I can't imagine a single employer could do it.

The other one, it could be done, but it's going to be difficult to do. And I think that's why we have so few studies, because it is difficult.

COMMISSIONER ISHIMARU: Could I reserve my time? I'm actually interested in hearing the discussion. Would that be okay?

CHAIR BERRIEN: We can return to you. Okay.

Commissioner Barker?

COMMISSIONER BARKER: I don't have any questions at this point. But depending on what Stuart says.


CHAIR BERRIEN: Well, I assume at some point your hunger will win out, so one of you will stop.

Commissioner Feldblum?


Thank you very much for both the written testimony and the oral. So I've got three questions and they're to both of you.

So if employers care about screening out applicants who might steal, do you think if they spent money getting a targeted criminal history report -- and I mean targeted saying have there been any convictions of this person for stealing – Do you think that would be more helpful to the employer, and if it's more targeted to the business needs? And do you think that would be cheaper or more expensive?

DR. TONOWSKI: I'll take it in order to punt. One area which has even less good information than credit history is criminal conviction history. So in terms of the information on what a targeted conviction history would give us, I don't know and I haven't seen any research that would tell us.

DR. AAMODT: You know, I think when you're looking -- That's a good question. But I think maybe the more appropriate question is to address kind of broader background check. A lot of the work I've done is with law enforcement agencies who have people who are trained to do background investigations where often an employer is not. And I think what they would respond is, "Let me take a look at that criminal history; let me look at that credit history; let me look at being fired from jobs; let me look at all those kinds of things and determine whether I think this person is trouble or not." And I think most background investigators, they're not going to want one or the other; they want that big picture.

COMMISSIONER FELDBLUM: Okay. Second, you know, I really -- I started wondering why are employers spending money on these credit checks and one of the things that I saw finally in Pamela Devata's testimony was, you want to see every single employer that they ever worked for, just in case they left out some employer. And that may be the employer that you actually want to get in touch with.

So, if employers care about checking all the employers that an applicant has worked for, do you think if they spent -- Do you think that a market would develop or is there a market where you can simply get a list of someone's employment history? Would that be more targeted? Would that be cheaper or more expensive?

DR. AAMODT: I think it would be more targeted. I don't know whether it would be cheaper or not, but I think it would be more targeted.

DR. TONOWSKI: There is already an industry out there of third party providers who are doing studies of various kinds and they could be tailored. Now I don't know what their pricing structure is. But it would seem that if the issue were employment verification rather than financial status, they could provide that kind of targeted report.

COMMISSIONER FELDBLUM: Right. I mean this was as I understood it simply the employment verification. Did this person work here? Did they -- From what date to what date?

Okay. My last question is on the personality test. I'm glad that you mentioned that. There are some concerns with it. I am hoping that we will be having -- I would hope a meeting specifically on personality testing and specifically how that screens out people with disabilities, certainly people on the autism spectrum. So I would not be -- I don't think that that's necessarily the way to go.

But I do have this question for you. Do you think it's possible to craft a reference form, a sort of sample, instead of paying all the money to the personality test? Craft a reference form that would ask the following three questions that would then be sent to every former employer? (1) Did the person perform adequately? Check yes, no, sometimes. (2) Did you have any specific concerns with the person's integrity or reliability? Yes, no, sometimes. (3) Would you hire this person again? Yes, no. Just those three questions.

So then my question to the two of you is, how useful do you think that form would be and then I have a question that is more towards the lawyers. And so, Madam Chair, I'll have a question for you about in terms of getting that from the lawyers. But first for this panel what would you say about that? How useful if you got that back from every former employer?

DR. AAMODT: I'll go ahead and start with that.


DR. AAMODT: I'll give you the psychology answer. It depends.



DR. AAMODT: It's going to depend a lot, for example, on the previous employer how directly related that previous position was to the current job. It's going to depend on that previous supervisor, how similar they are to the future supervisor.

And I think the big issue that many of the attorneys are talking about is, you're not going to get that information. So part of this, can you get it. But if I could get it, how much stock do I put in that? Or do we have discrimination potentially in the references I'm getting? So I think there are lot of other issues that come up. I'd like to have that info, but I'm not sure if it's any better.

DR. TONOWSKI: That's the psychologist answer. The HR answer I think is, I'm not going to tell you. I'm not going to tell you because I'm not sure how this is going to be used. I don't know how it's going to come back and bite me. And as a person who is mailing this thing out, I'd be real concerned about who is actually making those check marks. Is this the supervisor who is knowledgeable? Or is this a personnel technician who is just handling this thing and told to get it out by close of business?

COMMISSIONER FELDBLUM: Okay. Well, my question to the lawyers was, would anyone -- and this is sort of – would anyone think that if people answered those questions honestly, whether there would be legal liability, if they answered honestly, whether they felt the person performed adequately, whether they answered honestly about what they felt about the person's integrity or reliability and if they answered honestly about whether they would hire. I would be interested in this is a previous panel.

So, Madam Chair, just for clarification, in terms of the public record being open, obviously open for these witnesses that we heard, but is it going to be open for anyone to be able to respond to questions?

CHAIR BERRIEN: Well, the Commission, through the Executive Secretariat, does receive information related to the hearing and can receive information in the record.

COMMISSIONER FELDBLUM: Okay. So I presume that -- And are you setting any time period by which information relevant to this hearing needs to be sent to the Executive Secretariat or is it just open-ended?

CHAIR BERRIEN: I'm not aware of any time limitation, but obviously if the Commission acts or moves forward to act before any information is received . . .

COMMISSIONER ISHIMARU: Usually in the past, Madam Chair, we've usually put on a week or two time period just to try to bring closure to it just in case we do want to move. So letting people know that if you could get us an answer within ten working days, that would be helpful.

CHAIR BERRIEN: But, I think we can -- I'd like to consult with Executive Secretariat about a period that would be consistent with that practice and we obviously do need to make sure that all members of the public are familiar with what the practice would be.

COMMISSIONER FELDBLUM: Okay. So I'll assume for the moment that the record is open to anyone who wants to put in information related to this hearing, subject to perhaps the Executive Secretariat issuing some notice that says, "Actually, it will now end at this point." Is that correct?

COMMISSIONER BARKER: And will that deadline be on the website or can it go up on the website so people can immediately when they open it, they see without having to scroll through or find the tab?

CHAIR BERRIEN: Well, to clarify, to return to our opening of this meeting, all of the testimony that was submitted to the Commission either is already on the Commission website or will be immediately following this hearing.

The transcript obviously takes some amount of time to prepare and the transcript will be prepared and then posted afterwards.

I would like to confer with the Executive Secretariat about a time frame that would be reasonable for the receipt of any remaining information for the record.

COMMISSIONER FELDBLUM: But I'm just clarifying so that at the moment anyone can send in anything related to this hearing, related to any of these questions, to the Executive Secretariat. It will be part of the record of this hearing as of this point. And then you're going to be consulting about whether there should be a cutoff point. And at that point you'll be able to answer Commissioner Barker's question about whether that cutoff point will be placed on the website?

CHAIR BERRIEN: Any cutoff point that is determined would be a subject of public notice.


CHAIR BERRIEN: And the usual public notice that the Commission would use.

COMMISSIONER FELDBLUM: Okay. Great. Because I do think that for some of these questions especially it's great that many of the witnesses we had here, you were fantastic. I'm sure there are other people out there that might be able to have some thoughts about whether -- maybe there would -- and I am particularly interested in whether there would be -- Why would there be a legitimate fear of legal liability if you answered those questions correctly? Not because anyone could sue me? But you know, like maybe send some case law along with whatever you put in about why you think you would be liable. Thank you.

CHAIR BERRIEN: Well, Commissioner, just to clarify the procedure though, I don't want to create confusion. We have people who have testified and were publicly noticed to be witnesses today. And I think that if there are questions or follow-up information that you would like those witnesses to provide --

COMMISSIONER FELDBLUM: No. This is not to these witnesses. This is to the general public that is listening to this on the web right now, that is going to read the transcript tomorrow. I want to know whether those unnamed, unknown people can be answering these questions, sending us information and having that be part of our public record? That's my question.

CHAIR BERRIEN: Our record, the record of this hearing, is maintained by the Executive Secretariat and that office, in consultation with my office, will work to address your question about when and for how long people can submit information to the record. That record is open and the Executive Secretariat is the place to deposit that information.

But you had earlier said that you wanted to be able to ask or are more interested in hearing from the lawyers who I assume you meant this panel?

COMMISSIONER FELDBLUM: No, no. I meant the lawyers -- a whole bunch of lawyers who are not here. I mean it was -- I would have asked it of those lawyers if they were here right now.

But I'm curious about not just from the lawyers, even though you're great, not just the lawyers that are here, but some lawyer sitting in Seattle right now who's heard this and says, "Well, I actually have a legal point of view." I want to make sure that that legal point of view can be sent to us and be made a part of the record.

CHAIR BERRIEN: I understand. I wanted to be sure that none of these lawyers were in doubt about whether they were being asked to provide more to the Commission.


CHAIR BERRIEN: I think that clarification is important for them and for any preparation or follow-up they need to do.

COMMISSIONER ISHIMARU: But, Madam Chair, I think going to Commissioner Barker's point, I think to put a notice on the webpage where the transcript and the statements are, actually saying that we will welcome that, would be a good practice because I'm not sure if that's happened before. But it lets people know that we would open it, we would welcome such submissions.

CHAIR BERRIEN: I understand and appreciate that it has not -- My understanding is that it has not happened before. And obviously I think that we would like to ensure that we can notify the public in both a manner that's accessible, but also be sure that those who are being asked to receive that information are prepared to do that. That's the one thing that I'd like to confirm subsequent to this hearing.

Any other questions on that?

COMMISSIONER FELDBLUM: No, and I defer if anyone needs anything more.

CHAIR BERRIEN: And, well, we haven't had Commissioner Lipnic's or my questions.


CHAIR BERRIEN: Commissioner Lipnic.

COMMISSIONER LIPNIC: Thank you, Madam Chair.

And, Dr. Aamodt, I just want you to know that you stole the lawyer's line which is, we're the ones who always say, "It depends."



COMMISSIONER LIPNIC: And in response to Commissioner Feldblum and her question, then I would say the answer to your question is, "it depends as to the liability to those questions. And I'm sure we'll get lots of people commenting to the record on that.

Dr. Aamodt, my question, and this is somewhat a follow-up to Commissioner Ishimaru's questions. Do five studies even make up a meta-analysis? Because I thought I heard you say that 50 is a meta-analysis?

DR. AAMODT: You can technically do a meta-analysis on how ever many studies are out there. But the smaller the number of studies, the less emphasis you're going to place on it. And when you're talking about five studies, what I can do is say, "Based on the five studies that exist, this is what we know." But I think that it's just not enough studies. So I think you can do the meta-analysis, but it's not one I would, for example, run out and try to publish. I would wait until there were another 20 or 30 studies, which at this rate, would be another couple of hundred years to get those.


And I may not want to publish it at that point.

COMMISSIONER LIPNIC: And again, if we were asking you to create a study, what kind of sample size would you need of employers and that's even before we even get into asking about how they're making use of credit reports?

DR. AAMODT: Again, if you go back to trying to predict, let's say, performance ratings, I think you could with just a handful of relatively large studies that have the credit history that they've scored however they're going to score, that they have that on hand. I think you wouldn't need a lot. But the problem is, and I think many of the witnesses have already addressed this, is the practice of most organizations is not to do this for every employee or for every applicant. So what you've got is, a handful of actual people who you're going to have this credit history for. So I think it would take maybe more organizations. It's a major undertaking I think to do this, something that maybe a credit agency that has financial interest in doing this probably ought to investigate doing.

COMMISSIONER LIPNIC: And, Dr. Tonowski, would you agree with that?

DR. TONOWSKI: I agree. There have been various estimates about how many subjects are required to do an absolutely reliable study with maximum power to detect validity and I think the numbers are running in excess of 2,000. That's for a single study.

And then you want to cut that data by different demographic groups which means more people. And if you're comparing different methods of using credit information, well, that means even more people, so it would be huge undertaking.

I would agree with Dr. Aamodt that if we had a few good, big studies, well, then maybe we could do a better meta-analysis on it. But the fact of the matter is we don't have it and as far as I know, Dr. Aamodt's work is the most comprehensive we've got.

COMMISSIONER LIPNIC: So it would be potentially 2,000 employers and then --

DR. TONOWSKI: Two thousand people.

COMMISSIONER LIPNIC: Two thousand people.

DR. TONOWSKI: Two thousand people obtained however they're obtained. And then once you're talking about having to get those people from different organizations, that introduces another factor. You probably want more people in order to test whether the source makes any difference, it's a huge number of people.

COMMISSIONER LIPNIC: So just so I'm understanding both of your testimonies correctly, it seems to me that we are really lacking in information on this topic and not necessarily how the information is being used, but the impact the information is having in terms of discrimination analysis?

DR. TONOWSKI: I think that's a very good summary.

DR. AAMODT: I agree.

COMMISSIONER LIPNIC: Thank you, Madam Chair.

CHAIR BERRIEN: Dr. Aamodt, are you aware of any other employment criteria or standard that is in widespread use by employers where there is so little data or statistical or scientific evidence of a relationship between job performance and the information that's being reviewed or considered in the hiring process?

DR. AAMODT: The one that comes to mind is the one that Dr. Tonowski just mentioned and that would be criminal history. And we could expand that to just background investigations in general.

CHAIR BERRIEN: And could you speak a little bit about when you say expand the background in general, what exactly do you mean?

DR. AAMODT: I mean that many organizations, again especially law enforcement, but other organizations, are going to do a background investigation where they consider things such as a criminal history, credit history, employment histories and there's just very little research when you take all those different factors together and say, "Do I see trouble or not?" There's very little research that really has looked at the kind of comprehensive view of that much less credit histories by themselves. So I think that whole area is really underutilized in terms of research.

CHAIR BERRIEN: A few dimensions and we heard this in an earlier panel, there's a possibility that an employer could look at certain information because they believe it may have some predictive value about some kind of behavior that might occur with that employee or potential employee. Right?

And there's also been some discussion of sort of going backwards. And I'm wondering if there is a way of looking at an incident of theft and being able to draw conclusions that are scientifically valid about whether or not that could have been prevented by conducting a particular pre-employment screen or check. Is there -- we've had testimony today that is essentially suggested that because we've seen that a person stole money in the job, if we look back and find they were not subjected to a credit history, that means we ought to conduct credit histories more broadly. Is that consistent with the way that you would usually determine the validity of a practice?

DR. AAMODT: It's not consistent with the way we would typically do it. I think in the situation like this because theft for example is such a low base rate -- first of all, catching theft is such a low base rate -- that the way we would traditionally do these studies is so difficult. You know, I could envision a study that you're talking about where you're looking at people who are caught, getting a sample of people that we know hadn't stolen and try and go back and try to compare their backgrounds, but that's a very difficult study to do and Dr. Tonowski I think, when he talked about numbers, just to get to those, we're talking incredible sample size just to get to people that we want.

CHAIR BERRIEN: And, Dr. Aamodt, I believe you testified about both or at least your written statement addressed potential disparate impact on African Americans and Hispanics. Are there any other areas of potential disparate impact that you think the Commission ought to consider or take a closer look at in relation to use of credit history?

DR. AAMODT: I think that's a good question and I think any group that is under represented in terms of low socioeconomic status is potential. All right, so if you look at, for example, people with disabilities, they certainly might be a group that would be affected by credit histories. I don't know that data, but they certainly could be.

CHAIR BERRIEN: Dr. Tonowski, did you have anything to add on that point?

DR. TONOWSKI: Only that we seem to have some good information about credit score. The problem becomes when you take those possibly impacted groups and then start talking about how they're exposed to a myriad of different practices. We don't have good information about who is being subjected to specific practices. And that to me is a major problem.

CHAIR BERRIEN: Dr. Aamodt, you had talked about some other research concerning financial stress and relationship or possible relationship between financial stress and employee performance?


CHAIR BERRIEN: Does that research also address other areas of or causes of stress that could affect performance?

DR. AAMODT: It sure does. And again any type of stress, whether it's family, marital, health, financial, any type of stress is going to affect, potentially affect, performance at work. I think the question is, do you treat it as, we're going to pre-employment look for people who are stressed and not hire them, or do we take it a different direction and say, "Let's put programs into the workplace that are going to reduce that stress and get better performance."

So I think it's just depends on the perspective you take. But I think there's no doubt that stress certainly affects work performance.


If there are no further questions for this panel, we thank you for your time with us today.

DR. AAMODT: Thank you.

CHAIR BERRIEN: And appreciate your testimony and preparation to be here today.

I would like to thank all of our panelists, our audience both in person and remotely, all of my colleagues on the Commission for their participation and engagement today. This was an important discussion. I believe we all learned something. And we have all probably recognized some areas where we have more that we'd like to learn about.

This has been a very important opportunity to address some of the structural barriers to employment opportunities that are affecting job seekers as well as employees today.

Earlier when we opened the session, I know that Commissioner Barker had indicated she'd like to reserve an opportunity today to make a statement at the closing of the meeting, so I'd like to give you that opportunity.

COMMISSIONER BARKER: Madam Chair, I appreciate the opportunity, but my questions have been answered and I'll waive my remarks, because I can tell Stuart is hungry and wants to go to lunch.


CHAIR BERRIEN: All right. We thank you.

I also want to acknowledge again the employees of the Commission who have done so much to both prepare for and to execute today so that today's meeting ran smoothly, and I'm particularly appreciative of the work of two members of my staff, Awo Sarpong Ansu and Patrick Patterson.

I'd like to thank all of the panelists again for the time that you spent with us today. And we look forward to continuing this conversation and moving forward to ensure that our workplaces are free of all barriers to equal opportunity. And we thank you for the time you've committed today to help inform and guide us in that process.

With that, if there is a motion to adjourn?



CHAIR BERRIEN: All in favor?

(Chorus of ayes.)


(No response.)

Thank you. The meeting is adjourned.


The following Notice was posted on the EEOC website on November 23, 2010, at the same time this transcript was posted:

Commission Seeks Public Comment on Credit Report Alternative

During the Commission meeting on Employer Use of Credit History as a Screening Tool, held on October 20, 2010, an alternative to credit reports was suggested for employers to use in making hiring decisions.

Rather than obtain credit history on an applicant, the suggestion was made for an employer to pose the following three questions to an applicant's prior employers as a standard reference check: 1) Did the employee perform adequately? 2) Did you have any concerns about the employee's integrity or reliability? and 3) Would you re-hire this employee?

The Commission is seeking public comment on whether employers who provide honest answers to these questions would be subjecting themselves to legal liability, and why or why not.

All comments will be made available to the Commissioners, the Office of General Counsel, and the Office of Legal Counsel, and will also be available for inspection in the EEOC Library. Comments should be submitted by December 3, 2010, and can be mailed to Commission Meeting, EEOC Executive Officer, 131 M Street, N.E., Washington, D.C.20507, or e-mailed to