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Should employers be able to use credit reports to decide whether to hire someone?

August 7, 2015 Leave a comment

The mayor of New York City recently signed a bill that will preclude public or private employers from using a credit report to help them decide whether or not to hire someone.  This month’s blog post will ask whether this kind of ban is a good idea.  LIke most of my blog posts, it will present the question but won’t leave you with a firm answer.

On the one side, any number of consumer advocates say that there is no evidence to suggest that a person with a poor credit history will also be a bad worker.  One group in NYC lists five reasons why credit reports shed no light whatsoever on a person’s job performance.  One of them is the fact that someone at Trans Union allegedly admitted, under oath, that “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.”  (I haven’t been able to find a copy of this transcript and would invite readers to let me know if they do.)  Senator Elizabeth Warren has introduced federal legislation that would extend NYC’s upcoming ban nationwide; she says that “research has shown that an individual’s credit rating has little to no correlation with his or her ability to be successful in the workplace” but, again, doesn’t cite the research.

On the other side, some employers claim that “there is abundant research suggesting that financial stress has a negative impact on job performance.”  I was able to find some of the research that they are referring to, including this study which found that a large minority of employees had found personal financial issues to be a distraction at work, and this study which found that 20% of employees said they had skipped at least one day of work to deal with a financial problem.  However, these studies are not peer reviewed; they may be based on small or aberrational samples; they may be biased due to bad survey questions; and even if they show that financial issues can distract workers, they don’t take the next step and show that an employer, given access to a credit report, will be able to pick these people out in advance and hire workers with a better ability to focus.

Long story short, lots of people are making lots of claims about whether employers should be able to use credit reports when they hire people.  There is some evidence to suggest that they should, but both sides seem to be making arguments that outrun their evidence.

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