California Gov. Jerry Brown signed an important employment law into effect in early October. The bill prohibits most businesses from using credit scores and credit history by employers in making hiring decisions. California the seventh state in the country to ban the practice of credit checks by most employers.
The largest credit check company, TransUnion, heavily lobbied against the measure in California. TransUnion is currently under pressure to stop providing all employers with credit score information. It’s likely that the practice will continue until a state bans the practice such as California did.
Supporters of the bill, however, noted that during a down economy many prospective employees have a low credit score or poor credit history due to bad loans, overdue mortgage payments and high credit card debt. These factors shouldn’t prevent an otherwise eligible candidate from employment in California. Labor advocates and civil rights groups argued in favor of the California bill.
The bill also may have the effect of limiting race discrimination that minorities face in the job application process. According to the Huffington Post, minorities, on average, have a credit score that is 5 to 35 percent lower than the credit score of their white counterparts. One civil rights advocate said, “These credit checks are often used as disguises for other kinds of racial bias.”
Based on a survey by the Society of Human Resource Management, about 60 percent of companies throughout the U.S. currently use credit as a factor in the hiring process. This number has steadily risen in the past decade from only 19 percent in 1996 and 35 percent in 2003.
Source: Huffington Post “Civil Rights, Labor Advocates Demand End to Employment Credit Checks,” 10/11/11
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