Should Credit History Decide The Hire?
MICHEL MARTIN, host:
I'm Michel Martin, and this is TELL ME MORE from NPR News.
Don't act like you don't care. One of the multi-state lotteries is worth a whopping $330 million. But is winning a matter of luck or strategy? Later in the program, our guest, Richard Lustig, says he can tell you how to improve your odds - really. And of course, we have another guest who says, keep your day job.
But first, though, to another matter of jobs and money - the very serious matter of whether credit checks being used to screen applicants for jobs are having the effect of illegally discriminating against some job applicants. Just before Christmas, the Equal Employment Opportunity Commission, the EEOC, took the unusual step of suing Kaplan Higher Education Corporation, which is owned by The Washington Post Company, because it said Kaplan's use of credit histories to screen applicants had a disproportionately negative effect on African-Americans and had no bearing on the jobs being offered. The suit could have far reaching effects on the hiring processes of other employers.
We wanted to talk more about this whole question of using credit histories to screen job applicants, so we've called upon John Ulzheimer. He heads the consumer education group at SmartCredit.com. That's a for-profit company that's designed to help consumers track their credit histories and resist identity theft. And he's with us now. Thank you so much for joining us. Happy New Year to you.
Mr. JOHN ULZHEIMER (President of Consumer Education, SmartCredit.com): Same to you. Thank you so much for having me.
MARTIN: Is this the first time, to your knowledge, that a company has been challenged legally on the question of using credit histories to screen job applicants?
Mr. ULZHEIMER: At the EEOC level, this is the first time I've ever seen some sort of legal action taken against an employer for the use of credit histories. Certainly, individual consumer applicants have taken individual causes of actions against employers for alleged discriminatory use of credit reports for pre-employment and continued employment screening.
MARTIN: But this is the first time that you know that there's been a governmental intervention in this. And we assume there that the EEOC was making a statement about this.
Mr. ULZHEIMER: I think so. The state of New Jersey also made a pretty bold statement that they believe that it was time to put the practice out to pasture, so to speak. Although it still remains legal at a national level, you are seeing some states take actions to make it illegal at the state level. This is a shot across the bow. This is a wakeup call to any company that uses credit reports as a screening tool for pre-employment or continued employment.
You absolutely do not want the EEOC knocking at your door. And Kaplan is the unfortunate, the defendant in this lawsuit. It'll likely get settled. And it could lead to wide-scale changes in how employers use credit reports (unintelligible) of which is not necessarily a bad thing.
MARTIN: If you're just joining us, this is TELL ME MORE from NPR News. We're talking about the Equal Employment Opportunity Commission's suit against Kaplan Higher Education Corporation. They said that the use of credit checks to screen job applicants has had the effect of discriminating against certain job applicants, namely African-Americans. And that it also is irrelevant to the job.
We're speaking about this with John Ulzheimer of SmartCredit.com. That's a for-profit company that helps people check their credit histories and protect against identity theft. So, how widespread a practice is this? And is it legal?
Mr. ULZHEIMER: Well, the Fair Credit Reporting Act defines under what conditions a credit report can be used. And it's very clear in the Fair Credit Reporting Act that a credit report can in fact be used for the purposes of pre-employment and continued employment screening.
The assumption is is that the only time you have to worry about your credit is when you're out there trying to get a loan or if you're trying to get insurance when the reality is is that when you're trying to get a job or maintain a job, your employers do have the right under federal law to review your credit. Now, it's a little bit different...
MARTIN: And they can do it continuously while you're still employed? This can continue?
Mr. ULZHEIMER: Absolutely.
MARTIN: What would be the purpose? I mean, people do understand the whole question of screening in certain jobs. For example, if you are in, you know, air traffic control, people understand, you know, drug screening, because they clearly do not want you to be impaired while you're performing your job. But what is the logic behind screening someone's credit history for a job?
Mr. ULZHEIMER: I think the logic is all about responsibility. You can't make an argument that your credit reports are not some sort of window into your own personal responsibility and whether or not you know how to maintain good credit or you know how to manage obligations that you have with other lenders.
On the flip side, the argument is, is, well, I don't bring my credit with me to work. And I can be a very productive, high level employee regardless of what type of credit I have. There are millions of people in this country that have bankruptcies on their credit reports that are gainfully employed and do a very, very good job.
But you have to also look at it from the employer's perspective. So there is some sort of risk to me as the employer of liability if the person that I've hired does something egregious such as breech databases or sells personal information or steals money from the company. The best that we can do is to make sure that reactively that if it has happened we're doing the best that we can to protect ourselves.
MARTIN: Why would checking credit histories have a disproportionately negative effect on African-Americans?
Mr. ULZHEIMER: I'm not actually sure that it does. The suit just alleges this and there hasn't been any sort of practice or study that has confirmed that this actually happens. If you look at a credit report, there is no gender, there's no race variable. There's nothing on a credit report that identifies any sort of personal sort of preferences, if you will.
The challenge that Kaplan and, frankly, any other employer faces, if they choose to use credit reports for employment screening, is to ensure that they don't accidentally discriminate against protected classes by using the credit reports as a screening tool.
And I'm not saying Kaplan has done this, but you don't want to be lazy as an employer and simply use a credit report as a first tier disqualification tool because then you can get into trouble.
MARTIN: John Ulzheimer is president of consumer education at SmartCredit.com. He was kind enough to join us from Georgia Public Broadcasting in Atlanta. Thank you so much for joining us, and Happy New Year once again.
Mr. ULZHEIMER: Same to you. Thank you so much for having me.
MARTIN: And now a quick clarification from a discussion on issues of personal finance that we had at this time last week. On one question regarding tax policy, a response was a bit ambiguous for our listeners. Our regular personal finance expert Alvin Hall said he remembered that the gift tax annual exclusion was at least $10,000. According to IRS.gov, that exclusion is $13,000 in 2009, and we regret any confusion.