Credit checks may be curbed

Employers increasingly are using credit checks to screen job applicants, a practice critics say is making it tougher for many unemployed workers to find jobs in the midst of a grinding recession.

That could change by the end of this week, when a bill that would prohibit companies from pulling credit reports on most job seekers is scheduled to reach Gov. Arnold Schwarzenegger’s desk.

AB 943, introduced by Assemblyman Tony Mendoza (D-Norwalk), would narrow the category of jobs for which employers could investigate the financial background of applicants. Those would include positions in which employees would have access to large amounts of cash, valuables or confidential financial information, as well as managerial and law enforcement posts.

“Work history should be the major factor in determining [a candidate’s] ability to perform,” Mendoza said.


Employers increasingly are pulling credit reports on prospective hires; about 43% of employers do so, according to the Society for Human Resource Management. Federal law allows it as long as the job applicant gives authorization.

Companies defend the practice as a way to help verify that candidates are responsible and trustworthy. The California Chamber of Commerce supports credit checks as a way to flag hires with checkered backgrounds that wouldn’t show up in resumes or interviews. It has placed Mendoza’s bill on a list of “job killers” -- legislation it contends would hurt California’s economic growth.

The credit report “may be used to evaluate an applicant’s personal responsibility and organizational skills by their ability to pay their bills on time,” said Marti Fisher, a policy advocate for the chamber, in a message to Assembly members.

But some academic studies have found little connection between credit history and job performance. Critics contend that the practice perpetuates a vicious cycle in a rough job market: Candidates with dinged credit have a tougher time landing work that would help them out of their financial bind. Civil rights organizations say the practice is particularly disadvantageous to minorities and women.


Debra Banks, 54, has had five offers for data-entry positions in the last six years. All were retracted once employers pulled her credit report, she said.

The Hawthorne resident doesn’t fit the profile of an embezzler in the making, with her accounting certificate and years of experience, she said. Her credit score plunged because of visits she made to the emergency room without medical insurance, including one episode of chest pains that ended up costing her $26,000.

“I’m scared to even apply for jobs because my fear is them asking for a credit check,” said Banks, who has been unemployed for more than a year. “What difference does credit make as long as you can do the job? It overwhelms me, and it’s really, really unfair.”

The practice also discriminates against recent immigrants, some critics say, because credit scores are often based in part on the length of a consumer’s credit history. And foreclosures, a common occurrence in the recession, can cause scores to dive hundreds of points -- and the information stays on the record for seven years.

Divorce, identity theft and medical bills can also contribute to low credit without appearing on a report, supporters of the legislation said.

“It’s a very narrow way to examine future employees,” said Alice Huffman, president of the California NAACP. “It discriminates, doesn’t speak to the difficulties one might have had in this economy, and has little function as to how the potential employee might perform on the job.”

Schwarzenegger vetoed a similar bill last year. A spokesman for the governor said he had not yet taken a position on AB 943.