Given the economic recession, and the damaged credit histories it has caused, especially among those who have suffered home foreclosures, the use of credit checks of applicants by prospective employers is becoming a hot topic in employment law.   Surveys have shown that a majority of companies utilize such checks, typically to assess the financial responsibility of applicants, and to determine if an applicant has improperly deleted a prior job from his/her resume.   

However, credit checks have become the latest incarnation of such hiring tools as administering standardized tests which have come under scrutiny because they may have a disparate impact on minority applicants. While courts have often held that although a standardized test may be neutral and non-discriminatory on its face, and therefore demonstrate no discriminatory intent, nonetheless the impact of such a test may disproportionately fall upon minorities, and therefore be found to be discriminatory, despite the lack of intent.   So too the credit check.

Two recent lawsuits have attacked credit checks on just such grounds. The University of Miami was sued late last year for using credit histories which, it was alleged, discriminated against African American and Latino applicants because of the “disparate impact.” More recently, the EEOC sued Kaplan Higher Education alleging similar claims.      

Last month, a bill was introduced in Congress (H.R. 321) which would amend the Fair Credit Reporting Act by forbidding the use of credit histories in hiring and firing.  There would be exceptions, of course: i.e., for financial institutions, or for national security clearance. 

Employers would be wise to utilize credit checks only if necessary and only if there is arguable relevance to the position to be filled.