Out-of-work jobseekers are facing a significant obstacle to finding employment and restoring their financial health: the pre-employment credit check, which is being used increasingly often by staffing professionals. Companies who perform these credit checks say, in their own defense, that they are only engaging in due diligence and looking for general red flags such as a lack of trustworthiness or self-control. However, lawmakers and groups such as the ACLU are saying that this practice invades privacy, has little to do with performing most jobs successfully, and forces people who have lost their jobs into a downward spiral of debt. For a sign of the times, here’s a telling anecdote from recent The New York Times story "Another Hurdle for the Jobless: Credit Inquiries":

Out of work since December, Juan Ochoa was delighted when a staffing firm recently responded to his posting on Hotjobs.com with an opening for a data entry clerk. Before he could do much more, though, the firm checked his credit history. The interest vanished. There were too many collections claims against him, the firm said. “I never knew that nowadays they were going to start pulling credit checks on you even before you go for an interview,” said Mr. Ochoa, 46, who lost his job in December tracking inventory at a mining company in Santa Fe Springs, Calif. “Why would they need to pull a credit report? They’d need something like that if you were applying at a bank.” Once reserved for government jobs or payroll positions that could involve significant sums of money, credit checks are now fast, cheap and used for all manner of work.

The practice is definitely on the rise. Forty-three percent of companies conducting any type of pre-employment screening use credit checks for some or all employees, according to a 2006 study by the Society of Human Resource Management. The number was at 40% in 2004, and just 25% in 1998. We are almost certainly in excess of 45% today, and it’s quite feasible that the number is greater than one-half. What are the current rules in the U.S. about checking an applicant's credit? Reports Dana Dratch in her article "States weigh limits on credit checks for employment":

Absent a state law or change in national law, employers can (with an applicant's permission), pull a credit history and decline to hire a candidate based on what they find — even if the information has no relation to the job. And with many Americans struggling financially simply because they are out of work, legislators are seeking to prevent something they see as needlessly punitive.

While most states have no restrictions against checking an applicant’s credit, Hawaii tightened limits on the practice just last month. (Washington State had set up limits two years ago, but was the only state to do so at the time.) These are the only two states with any laws on the books about the practice, although, at the time of this writing, Connecticut, Missouri, New York and Texas are all considering proposals to limit the use of credit checks in pre-employment screening. On the national level, Representatives Steve Cohen of Tennessee and Luis Gutierrez of Illinois have sponsored H.R. 3149, the Equal Employment for All Act, a bill that aims to prevent employers from using credit reports in their hiring or promotional decisions. As reported by Lewis Green on credit.com:

Speaking at the bill's launch, the two congressmen raised concerns about the mounting financial pressures faced by people who are coping with unexpected difficulties, such as job loss and medical bills. Gutierrez pointed out that the major obstacle standing in the way of some people's financial recovery is securing employment. But if they continue to be denied a job because of their credit report, it could lead to a vicious cycle. "Right now the number of U.S. employers conducting pre-employment credit checks is on the rise and too many Americans are caught in the preventable cycle of debt," Gutierrez said. "They have been hit hard by an economy in crisis, they have fallen into bad credit and as a result they cannot do the one thing that would enable them to climb out - get a job." The bill does make allowances for credit scores to be checked within some limited categories of employment, such as jobs involving national security or a large amount of financial responsibility. However, Gutierrez emphasized that those are exceptions rather than the rule, and said that the ability to perform most roles is unrelated to a person's credit history.

All proposed legislation contains exceptions for persons working with national security and/or large amounts of money. In addition, no one is proposing that criminal background checks be limited — only credit information, in jobs where one's credit history is not relevant. Readers, what is your take on this? Do you work for a company that checks credit reports? If so, do you recommend the practice? On the flip side, is there anyone out there who has eschewed credit checks, even if they are legally available? Finally, we're extremely intrested in hearing from HR professionals in Hawaii and Washington who have been dealing with changing state laws. Talk to us in the Comments!