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Wall Street Journal: City Acts to Limit Credit Checks

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Wall Street Journal

By Lauren Weber

New York City is one step from enacting a ban that would prevent employers from using credit checks to screen job applicants, which the sponsor of the measure says is the most far-reaching in the nation.

The City Council passed the bill on Thursday and Mayor Bill de Blasio is expected to sign it into law. The ban includes exceptions for certain positions, including law enforcement personnel and firefighters.

“What could we be doing that is more unfair?” the bill’s sponsor, Councilman Brad Lander, a Democrat, said of credit checks for employment shortly before the 47-3 vote. Opposing the ban were Councilmen Mark Weprin, a Democrat, and Steven Matteo and Eric Ulrich, both Republicans.

Business groups have argued that employers should have greater discretion in their use of credit checks.

“In this age of technology, where many employees have access to private customer and company information and funds, employers have a greater responsibility than ever to carefully vet their workforce,” Kathryn Wylde, chief executive of the Partnership for New York City, said in a statement on Thursday, adding she hopes the bill “proves sufficient to protect the interests of businesses and consumers.”

About 47% of employers nationwide used credit checks in 2012 for at least some positions, according to a survey by the Society for Human Resource Management. The employers cited credit checks as a tool to help prevent theft and reduce legal liability for negligent hiring in case an employee, for example, steals customer data.

Use of credit checks has fallen from 60% in 2010, a sign of the effectiveness of campaigns to stop using the screening tool. A handful of states have banned credit checks by employers, but the laws include broad exemptions, said Josh Zinner, co-director of the New Economy Project, which helped draft the New York City bill and has been trying to get it passed for three years.

“This practice blocks qualified workers from desperately-needed jobs, including people whose credit was damaged because of medical debt, layoffs, divorce” and other life events, he said.

In a paper to be published later this year in the Industrial and Labor Relations Review, Massachusetts Institute of Technology graduate student Andrew Weaver found that a person’s credit status doesn’t predict his or her work performance.

Shelly Martin, of Manhattan, said she was working temporarily as an executive assistant with a sports company a few years ago when she had the opportunity to move into a permanent job with the same firm. But one day she received a notice that the company had been sent her credit report, which showed a high debt-to-credit ratio because of her student loans.

Disturbed that personal information was divulged to her employer without her express permission, Ms. Martin said she went to the company’s human resources representative, who explained that such requests were standard practice.

Ms. Martin didn’t get the permanent job, but was never told if that decision was related to her credit report. Even so, “I felt embarrassed that my credit got bad,” she said.

After her temporary work ended, Ms. Martin, now 44 years old, received unemployment benefits briefly before finding another position.

“My mother told me, never let your credit go bad,” she said. “But I never thought it mean I wouldn’t get a job.”