Run Credit Checks When Hiring? New Laws Could Change This

A recent survey by the Society for Human Resources Management found that 60% of employers said they run credit checks on at least some job applicants, compared with 42% in a somewhat similar survey in 2006, the Associated Press reports.

Employers say that credit checks give them valuable information about an applicant’s honesty and sense of responsibility. But lawmakers in at least 16 states have proposed bills outlawing most credit checks, saying the practice traps people in debt because their past financial problems prevent them from finding work.

Under current federal law, prospective employers must get written permission from applicants to run a credit check on them. But consumer advocates say most job applicants do not feel they are in a position to say no.

Most of the bills being proposed this year resemble laws in Hawaii and Washington that prevent employers from using credit reports when hiring for most positions. The laws contain exceptions in cases where such information could be relevant to the job — for example, if the person is applying to work in a bank or an accounts-payable office.

Even though more companies are using credit checks, only 13% perform them on all potential hires, according to the Society’s survey.

The group’s director of government affairs, said a blanket ban could remove a tool employers can use to help them make good hiring decisions. For example, a 2008 survey by the Association of Certified Fraud Examiners found that the two most common red flags for employees who commit workplace fraud are living beyond their means and having difficulty meeting financial obligations. The same survey estimated American companies lost $994 billion to workplace fraud in 2008.

This is something that employers should continue to check with their state legislature about to see what current or pending regulations could be ahead for the future of their hiring process.