It makes sense that a credit check is required for credit card or loan approval. The justification is not so strong when it comes to employment. In early September, California was the seventh state whose legislature passed a bill limiting prospective employers from checking credit reports for job applicants.
If Governor Jerry Brown signs the bill into law, prospective employers in California may soon only run credit checks if information gathered is vital to the duties of the job. In April, similar legislation became law in Maryland and Connecticut followed in July. Washington, Oregon, Illinois, and Hawaii enacted related laws in past years. The National Conference of State Legislators reports that legislation of this type has been introduced in at least 18 other states.
Opponents say that businesses will suffer from the regulations. They also feel that a poor economy is the worst time to restrict troubled businesses that could be further damaged by bad hires. Proponents believe that now is the best time to enact such laws. What both sides do agree on is that little empirical evidence supports the notion that hiring someone with poor credit affects job performance.
Legislators are realizing that job seekers are stuck in a catch-22. They are unable to pay their bills because they cannot get a job due to employer credit checks and they cannot get a job because they are unable to pay their bills. According to a 2010 Society for Human Resource Management survey, 60 percent of employers run credit checks on at least some job applicants.
The majority of employers surveyed conduct applicant credit checks for jobs featuring financial or fiduciary responsibility. Some states have included legislative exceptions that permit this practice. Legislators reason that an abundance of unpaid cash advances is an indicator that an individual may not make a good CFO.
