When business invites regulation

When 2013 began, just eight states barred employers from prying into the credit records of their workers. That is no longer the case. While I don’t yet have a full list of those who have joined this elite group, it is growing steadily, and in states where there is no prohibition, local governments are also enacting ordinances. In Congress, Massachusetts Sen. Elizabeth Warren has introduced legislation to put an end to the practice nationally.

Surprisingly, Nevada is one of those who joined the trend this year. A new state law, sponsored by Clark County Sen. David Parks, took effect in June. It reads in part, “[I]t is unlawful for any employer in this State to: 1. Directly or indirectly, require, request, suggest or cause any employee or prospective employee to submit a consumer credit report or other credit information as a condition of employment; 2. Use, accept, refer to or inquire concerning a consumer credit report or other credit information; 3. Discharge, discipline, discriminate against in any manner or deny employment or promotion to, or threaten to take any such action against any employee or prospective employee: (a) Who refuses, declines or fails to submit a consumer credit report or other credit information; or (b) On the basis of the results of a consumer credit report or other credit information…”

It also provides for penalties if any employers engage in retaliation against workers who assert their rights to the privacy of their credit reports. Unfortunately, there are some gaps in the new Nevada law.

Nevertheless, this is quite a benchmark. The Nevada Legislature has a long history of contempt for workers and of giving a blank check to the business community in how it treats workers. But in Nevada as in other states, this nasty little credit practice had spread too far without accomplishing anything. The evidence that credit scores have much of anything to do with capabilities is difficult to come by. Setting aside the fact that credit reports are shot through with errors and often difficult to correct, imagine a human resources director who is confronted with, say, a woman’s credit score that shows bad credit. There is nothing in it that notifies anyone that the woman’s ex-husband/abuser ruined their credit during divorce proceedings as reprisal. This is only one of many scenarios that undercut the claim that these reports are relevant to jobs.

The notion that credit history gauges character and competence was once very chic among employers, but over the years research has raised substantial questions about any such correlation. Bad credit is more likely to show unforeseeable personal setbacks or the consequences of recession than personal failings. The New York think tank Demos has reported that “there is no evidence that credit history is relevant to job performance. … But the fundamental unfairness of the situation goes a step further: we find that poor credit history is associated with factors such as race, unemployment status, parenting responsibilities, and medical debt that have not been justified as reasons to make hiring decisions and – in the case of racial discrimination in hiring – are illegal in the United States. Accordingly, we conclude that credit history illegitimately obstructs access to employment.”

Demos reports further, “Unlike lenders, employers do not look at a hard number like a credit score but rather subjectively assess the credit report’s list of accounts, subjectively deciding how much weight they give to elements such as foreclosures, late bills, or accounts in collection.”

But employers hung on to the right to fish through worker histories the way the U.S. Navy kept buying “shark repellant” for its divers for decades though the stuff did nothing.

Business lobbyists often complain about overregulation by government. But just as often, what happens is that business is unwilling to reform itself. The lack of correlation between credit history and job performance has been known for years, but many employers were unwilling to give up the ability to keep using credit checks. It was a case where growing abuses were not dealt with by the private sector and government stepped in – after waiting a LONG time for the business community to deal with the problem. It might be noted some governments themselves dropped credit checks for their public employees while businesses declined to do so in the case of private sector workers.

Dennis Myers is an award winning journalist who has reported on Nevada’s capital, government and politics for several decades. He has also served as Nevada’s chief deputy secretary of state.