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Use of Credit Checks Scrutinized in Employee Selection

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A hot topic of debate (yes, debate) at my office, and within Human Resources departments across the country, is what tools and practices should and shouldn't be used in the selection process. For example, is GPA a good or bad indicator of someone's future potential?

Credit checks are also a measure of contention. For financial and security reasons, I believe in using credit checks for specific positions (but not for all positions). For example, in my previous job, I ran credit checks on employees who would be: a) directly handling cash; b) possessing organization bank and/or investment account information; c) accessing personal or confidential employee information (like Social Security numbers or direct deposit information); d) using an employee credit card; e) calculating, monitoring, and/or reporting financial information; and f) managing, ordering, or accessing supplies, equipment, inventory, and/or other capital over a specific set dollar amount. While these criteria may appear to cover a large number of employees, there should only be a select group of people with that level of access if your organization's processes are set up correctly.

In a recently released 2012 Society of Human Resource Managers (SHRM) survey of more than 500 HR professionals in the United States, SHRM found that the number of employers using credit checks has decreased since 2010. Specifically, the survey indicated that only 47 percent of organizations are still using credit checks, compared to 60 percent in 2010.

According to Mark Schmidt, Vice President of Research at SHRM, "Employers are becoming more aware of the scrutiny that the states and federal government are putting on these tools, so they're using them in more discrete ways. They're using them to target specific jobs, where it's more job related." SHRM notes that this includes staff members who have access to confidential information or handle large sums of cash.

The survey also revealed other interesting statistics:
• 45 percent of employers noted that the primary reason their organization conducted credit checks was to reduce or prevent embezzlement, criminal activity, or theft, while 22 percent said it was to reduce legal liability for negligent hiring. Nineteen percent of employers surveyed noted that they used credit checks to assess the overall trustworthiness of the candidate and seven percent to comply with applicable state law for specific positions.
• 80 percent of organizations noted that they had hired a job candidate with negative information on their credit report.
• 87 percent of respondents said they conducted background checks on individuals who handle cash or sensitive information.

In 2009, the United States Equal Employment Opportunity Commission (EEOC) began to scrutinize credit checks as well as criminal background checks used in the selection process to determine if they adversely impacted an applicant due to their sex, national origin, or race. Information regarding the EEOC's recent decisions concerning criminal background checks can be found on their website. While some employers still question whether to use credit reports in selection, several states, including Vermont, Connecticut, Maryland, Illinois, Oregon, Washington, California, and Hawaii, have answered the question for them, acting to outlaw the use of credit checks in selecting candidates.

Does your district use credit checks and if so, for what types of positions?

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