Lawsuit Challenges Legality of Pre-Employment Credit Checks

The U.S. Equal Employment Opportunity Commission (EEOC) has filed a lawsuit alleging that the practice of conducting pre-hiring credit checks by Kaplan Higher Education Corporation, a company that provides test-preparation and post-secondary services, discriminates against certain classes of Americans and is therefore unlawful.

And, in case that’s a little too much legal information for your comfort level, here’s what that means and why it’s good news if you’re struggling with debt and/or recovering from bankruptcy.

So What’s the Deal with Pre-Hiring Credit Checks?

Here’s a look at the basics of employer-conducted credit checks.

  • What they are: As part of the hiring process, many employers (as many as 60 percent, according to some polls) have begun running credit checks on job applicants (in addition to conducting criminal background checks). In theory, these credit checks are valuable to employers because they divulge information about an applicant’s overall capabilities.
  • Why they’re controversial: While few people oppose the practice of running credit checks for applicants to positions that involve finance, many consumer advocates have spoken out against credit checks for applicants in non-financial fields. After all, if the current recession has taught us anything, it’s that poor credit can have little to do with a person’s responsibility, intelligence and job worthiness. Further, a few states have already made pre-employment credit checks illegal for non-finance jobs.
  • The current lawsuit: The EEOC’s charges against Kaplan include allegations that Kaplan’s practice of conducting credit checks before making hiring decisions constitutes to discrimination, because black and Latino Americans reportedly have statistically lower credit scores than white Americans.
  • The legal reasoning: According to a Credit.com piece on the issue, the case has teeth because it applies legal reasoning the EEOC used to show that criminal background checks also disproportionately affected black job applicants because blacks are more likely to be arrested than whites.
  • The reason it’s important: If the court rules that pre-employment credit checks lead to discriminatory hiring decisions, such credit checks could be outlawed in more states, potentially making employment easier to find for people who have struggled with debt problems.

Potential Outcomes of the Case

While the lawsuit is still in its early stages at this juncture, it has the potential to change the current state of pre-employment credit checks in the U.S. The court could, depending on the evidence presented, rule that pre-employment credit checks amount to discrimination in the hiring process.

This could be good news for people recovering from a bankruptcy filing or otherwise fighting debt burdens, because being denied employment for credit-related reasons can lead to a frustrating and debilitating debt cycle.

In the mean time, you may want to consult with a bankruptcy lawyer if you have been denied employment because of something in your credit report.

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This entry was posted on Thursday, December 30th, 2010 at 11:21 am and is filed under The Law and Your Money, Your Credit Score. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

One Response to “Lawsuit Challenges Legality of Pre-Employment Credit Checks”

  1. William says:

    credit checks need to be illegal, it is bias towards everyone, especially any hispanic, black or individual living in the projects. I have a poor credit score not due to being a complete asshole with my money but because I did the responsible thing to take care of my parents during a medical crisis yet labled as a criminal, potiential criminal due to debt. You know what, I cannot get out of my debt by working BS jobs that do not pay me what I am worth, thererfore the cycle continues. It also continues because debt collectors refuse to compromise with the bills, it continues because I cannot get a job that pays me more that 30000 a year. (living in nyc with a wife on medical leave and three daughters, 30000 yearly means shit). Finally, to all you business folk thinking a person with poor credit equals criminal, look in the news, it’s always the rich, white guy still money.