Facing unemployment in a dismal economy, Vernita Humphries of Randallstown, Md., was elated when she landed a job last year. But just days before her start date, the chief financial officer telephoned her personally to rescind the offer.
Her bad credit, stemming in part from a divorce and the cost to care for her mother after a stroke, had come back to haunt her.
"It was like a real bad feeling in the pit of my stomach," said Humphries, who worked in payroll for 35 years and couldn't fathom what hadn't checked out in her background. When the company indicated that her bankruptcy seven years ago prevented the hiring, she said she "was really taken for a loop."
Employers' use of credit histories to screen applicants is turning into one more barrier for the nation's unemployed — about 15 million people — many of whom end up with tarnished credit when they lose a job and struggle to pay bills, credit cards and household expenses. Critics of the practice say it perpetuates a cycle of joblessness and hinders economic recovery.
That has stirred a movement, supported by consumer and worker advocacy groups, to clamp down on credit checks by employers. In 16 states, lawmakers are proposing legislation to limit use of credit checks to hire or fire, while legislation is pending in Congress that would ban employers from hiring and firing based on creditworthiness. Proponents say credit reports can contain errors and, even when accurate, can be an unfair and discriminatory judge of worker ability.
"Credit reports were meant to determine credit-worthiness, not job-worthiness," said Maryland state Sen. Mike Lenett, a Democrat who sponsored a bill heard last month by the Finance Committee. The senator said he has heard numerous stories of people being offered a job and "at the last minute having the rug pulled out from under them and denied a job on the basis of their credit report."
Sixty percent of employers surveyed by the Society for Human Resource Management said they conduct credit background checks for job candidates, with most employers running checks only on selected applicants, rather than all. About half the employers in the January survey said they typically review six or seven years of history. The top reasons given by respondents for turning down candidates: outstanding judgments, accounts in debt collection and bankruptcies.
With people unemployed for longer periods than in past economic downturns, "unprecedented numbers of people are seeing their credit suffer because of job loss," said Melissa Broome, a senior policy advocate with the Job Opportunities Task Force.
"People these days are doing everything they can to scrape by and figure out what bills they're going to pay," Broome said. "Just because you have bad credit doesn't mean you will be a bad worker or an untrustworthy person."
Employers and business groups have come out against efforts to limit credit checks, saying they need to know the financial backgrounds of people working not only in banks and other financial institutions but in stores, restaurants, hospitals and customers' homes.
Opponents have testified in legislative hearings that such limits would deprive companies of a valuable screening tool. And some argued that employees and applicants are already protected under the federal Fair Credit Reporting Act, which requires an employee's consent before credit can be checked.
"Employers need some flexibility, particularly for jobs that have to do with cash," said Allyson Black of the Maryland Chamber of Commerce.
The consequences of failing to make such background checks can be serious and cost businesses money, said Colleen Denston of the Maryland chapter of the Society for Human Resource Management. If faced with serious misconduct by an employee, an employer could be sued for negligent hiring, she said. Some positions, such as janitor, may require credit checks in hospitals where they could access medicine and patient information, but not in some office settings. Employers say they need the flexibility to decide when to check credit.
Retailers lose hundreds of millions of dollars each year from employee theft, and employees with heavy credit card debt might be more likely to steal, or pilfer credit card numbers, said Tom Saquella, president of the Maryland Retailers Association. Similarly, restaurants need to check the credit of workers who handle cash and credit cards, industry lobbyists said.
At Comcast Cable, which is currently hiring, the company uses background checks mostly to verify education, work and driving records, said Sean Looney, a company lobbyist.
"We send employees into people's homes," he said. "We have to be real careful about who we hire."
Lenett maintains that people who have had financial difficulties or hit hard times are no more likely to commit a criminal act than someone with stellar credit.
"It's unfair to deny people jobs based on their credit report," he said. "It's an unfair assumption they would be dishonest. People who are laid off, if they're able to get back in the work force, they are grateful."
Marie Payzant, a 52-year-old single mother and entrepreneur who's run several small businesses in Baltimore over the years, said she has experience from both sides of the employment line.
Payzant owned the A Bit of Zen boutique in the Rotunda shopping center in Hampden, where she sold apparel from around the world until closing last March. She said she discovered one or possibly two former employees stealing from her, though she never was able to bring a case against them.
She's not sure now whether running a credit check would have given her any more insight at the time or stopped her from hiring those employees. But she blames losses in the business, in which she had invested all her savings, for ruining her own credit. Since then, she said, the lending climate and her debt have made it impossible to tap into the equity on her city condo to pay off business debt.
Banks will no longer give her loans to start a new venture, though she's run many in the past, including A People United, a Baltimore retail business and clothing line. She also has worked as a clothing designer and created the Tribe and Sweater Girl lines.
And now, Payzant has found herself unable to get a job; she's been turned down for positions in stores and restaurants. To make car and condo payments, she has resorted to selling her furniture and other possessions online. She also put her truck and condo up for sale and doesn't know where she will move.
"I feel like a metaphor as so many of us are for what's happening," she said. "I'm just one of many people who are facing these obstacles. The credit (problem) freezes me from any hope. It has the effect of just clamping down your options."
She said she understands the need to check people out if they're handling a company's money, but she doesn't think people should be penalized as they are trying to start over. She is making it from week to week, she said, at one point selling off a bicycle and a cello to make ends meet.
"It's continual angst and anxiety," Payzant said.
Humphries, the Randallstown resident, struggled financially several years ago when facing a divorce, her mother's medical costs and paying for the education of her two children. The choice came down to losing her house or filing for bankruptcy.
"I was in a bind where I wanted to keep my home and my kids in school, so I did what I had to do to survive," she said.
After losing out on the chance for the payroll job last September, Humphries, 58, was unemployed for four months. She was able to get a job with a state agency in January, making half of what she used to earn. She said that has forced her to dip into her 401(k) and depend on her son and daughter, now grown, for financial help.
"This is not the way I wanted to go out," she said. "I wanted my retirement to be for my retirement."
Source: McClatchy-Tribune Information Services.