There has been a lot of discussion lately about the EEOC’s decision to sue Kaplan Higher Education Corporation on the grounds that its policy of using credit histories as part of its applicant screening process had a discriminatory impact on minorities. Also, as noted at the end of last year in the Delaware Employment Law Blog, Illinois just became the fourth state to prohibit employers from disqualifying candidates based on credit history and, as of last summer, 15 other states had similar legislation pending. Ohio’s bill, which was introduced in 2009, never gained any traction. Though I continue to believe that an outright ban on employer credit history checks is overbroad, the Federal Trade Commission’s Interim Report to Congress issued earlier this week provides another reason why employers should exercise considerable caution in doing such checks.
The FTC’s Interim Report demonstrates that the accuracy of credit history reports remains an open question. The FTC is in the process of a study that will have 1,000 random consumers review their credit reports with an "expert who will help identify potential errors on their reports. Participants will be encouraged to dispute errors that could affect their credit standing, and credit reports with alleged errors will be sent to Fair Isaac Corporation (FICO) for rescoring. The study will estimate the proportion of consumers who would find one or more material errors in their credit reports, and it will reveal the main types of errors, their frequency, and their impact on a consumer’s credit standing. Overall, the study will categorize errors by type and seriousness in terms of potential consumer harm."
It looks like we have quite a wait ahead of us before any conclusions are reached on the general accuracy of credit reports. According to the FTC, the data collection phase of the study will not be finished until October 2011, and the Commission’s next interim report to Congress, which is intended to provide a full analysis of the collected data, is not due until December 2012. In the meantime, both the EEOC’s new aggressive approach to credit history checks and the rise of legislation outside of Ohio suggests that employers consider whether there is a business necessity for seeking credit history on employment candidates.