Senator Elizabeth Warren (D-Mass.) introduced legislation on Tuesday that would ban the widespread practice of employers using prospective employees' credit ratings as a basis for hiring, a practice she said is "one more way in which the system is rigged."
A 2012 poll by the Society for Human Resource Management found that nearly half of all employers used credit checks in the hiring process.
Warren said that the legislation, the Equal Employment for All Act, "is about basic fairness."
"A bad credit rating is far more often the result of unexpected medical costs, unemployment, economic downturns, or other bad breaks than it is a reflection on an individual's character or abilities. Families have not fully recovered from the 2008 financial crisis, and too many Americans are still searching for jobs. This is about basic fairness -- let people compete on the merits, not on whether they already have enough money to pay all their bills," Warren stated.
Over 40 organizations, including the National Employment Law Project, SEIU and Demos, have endorsed the Act.
Describing the problem of employment credit checks, Amy Traub of Demos writes that their use "illegitimately obstructs access to employment." Reporting errors in credit reports are common, Traub adds, and the use of the reports presents "a particular concern for people with disabilities and victims of domestic abuse." She writes:
"Domestic abuse, divorce, and medical bills are among the leading contributors to credit problems. In cases of domestic abuse, it is not uncommon for the abuser to purposely ruin a spouse's credit as a way of controlling the spouse. Despite common sense and legal recognition that questions about marital status, medical conditions, and abuse ought to be out of bounds in the hiring process, many employers ask prospective employees to 'explain' any credit problems brought to light by a credit report. This forces job applicants to choose between discussing a recent divorce, confidential medical issues, and/or very personal details regarding the abusive dynamics in a relationship, or risk losing a job opportunity. Questions about medical debt particularly impact people with disabilities, for whom disclosure of a medical condition may lead to discriminatory treatment."
A fact sheet on the legislation from Warren also notes that credit checks have a particular impact on minorities, as "credit reports in the hiring process are disproportionately used to disqualify people of color from open positions," and women, because "the fallout from a divorce often hits women's finances particularly hard, and women are more likely to receive subprime loans than men."
During an interview with MSNBC's Chris Hayes on Tuesday, Warren said that the use of credit checks for employment is "one more way in which the system is rigged."
"So think about it this way--if you're rich and you get divorced, it's not going to hurt your credit rating. If you're rich and you have a medical problem, it's not going to hurt your credit rating. If you're rich and you end up quitting your job or losing your job, you walk out with a whole lot of savings, you walk out with a nice package. It's not going to hurt your credit rating," Warren said.
"But how about families who work hard every day, who live a lot closer to the economic margin?" Warren continued. "Those are the ones who get hit with a problem, with a medical problem, with a job loss. And boy, it's not only the hit, it's the financial fallout from that hit. And here's the deal: it stays on their credit report for seven years, in some cases even longer."
"So what does that really mean? This is a problem that hits hardworking families who are struggling to get back on their feet. It's not one that hits the rich, and I think that's just wrong," Warren said.
To watch the full interview, please go to Common Dreams