Is Creditworthiness a Protected Characteristic? Yes, says EEOC

EEOC has filed a particularly newsworthy lawsuit against Kaplan Higher Education Corp.The suit is based on Kaplan’s alleged consideration of candidates’ credit histories during the hiring process.  EEOC takes the position (and has, for quite some time), that employers may be engaging in unlawful employment discrimination by using a candidate’s credit history when deciding who to hire. EEOC contends that this practice, in which many employers engage regularly, has an unlawful discriminatory impact based on race and is neither job-related nor justified by business necessity.  In short, EEOC alleges that employers, including Kaplan, are disproportionately disqualifying black candidates due to credit ratings. Credit histories and hiring

Although I understand that there is a comfort to employers in using credit histories to screen clients, comfortable isn’t always the most desirable outcome.  When an employer asks me about whether to rule out a candidate based on the candidate’s credit history, I usually suggest that it’s very possible that a top performing employee can be so focused on being a top performer that their personal lives are left unattended. In other words, you can imagine an employee whose personal credit is less than perfect because they’re too focused on work–not the worst employee that I can imagine, by far.

Another scenario is an employee who goes through a difficult divorce, which results in a poor credit rating.  Or, alternatively, if the employee has had a serious family illness.  This, also, can lead to financial difficulty and, in turn, to a less-than-stellar credit rating. 

Of course, none of these scenarios are connected by race or ethnicity.  Thus, I can’t say that I am particularly compelled by EEOC’s position in the Kaplan case. But neither am I compelled by a credit score–especially not in a difficult economy or in any economy when looking for the best possible employee for the job.

One final note.  Illinois recently passed a law prohibiting employers from disqualifying candidates based on credit history.  The law takes effect on January 1, 2011.  Hawaii, Oregon, and Washington have similar laws.  And, as of late summer, 2010, similar bills were pending in 15 states.  So it seems indisputable that the practice is becoming more and more disfavored.

Other Resources:

Washington Post article re: EEOC v. Kaplan

EEOC Press Release


6 responses to “Is Creditworthiness a Protected Characteristic? Yes, says EEOC”

  1. Regina says:

    But how about if the position is in the realm of dealing with money? A pretty good assumption would be that there would be a greater temptation for theft if the employee was having financial difficulties.

  2. SAB says:

    The Illinois Law makes exceptions to allow employers to use credit histories when a person deals with money. I’m certain this exception will continue with other states’ version of the law.

  3. B says:

    Regina, that’s a pretty huge leap to make; to conclude that because someone is facing financial difficulties, they’d risk an exponentially worse predicament (a theft conviction, fines, incarceration, loss of their job)by embezzling from the company. Seems to me that in most cases, someone’s criminal background check would be more relevant to any issues of trustworthiness with money.

  4. Vickie says:

    People who dishonest enough to engage in embezzling usually have a history that can be caught by a criminal background check. No need for a credit check. If they have no criminal history, then they probably won’t be stealing just because they are going thru a rough patch. My experience…I had to declare bankruptcy 10 yrs ago due to circumstances and yet I have never stolen a penny in my life, not then and not ever. I was Exec Director with full control on funds of the organization I led and I thank God that my employer trusted me. But they should have…I had no criminal history.

  5. Sandy says:

    If the position is in relation to an Officer level, then it can be understood for a credit check in advance. But you can’t assume that if the credit report is less than stellar for any reason, that this is a true sense of how the person will perform the job or a trust factor with the job. You’re pigeon-holing the situation and that can be considered discrimination. No employer should really be doing credit checks for deciding if they should hire the person for the job. It’s the same assumption insurance companies use for assigning rates to drivers.

  6. Great post! You inspired me to write a little about the Oregon version of this law at I imagine the new credit history bans have created some HR compliance issues for regional and national firms that outsource background screening.

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