By David Migoya
The Denver Post
As he walked recently to a job that pays a lot less than what he once earned, Walter Sanchez said his trashed credit history — the result of a pair of layoffs that eventually cost his family its Aurora home — has hindered his job search.
"Last year, I applied for so many different jobs," he said, dragging out a few extra o's in "so." "After they'd check my credit history, the majority would just say, 'Thanks for applying,' and simply deal with someone else."
Sanchez is one of thousands of unemployed or underemployed who could benefit from a proposal in Colorado — similar to measures being considered or passed in a growing number of states — to limit employers' use of credit histories to screen job applicants.
Credit histories are used by 60 percent of all companies as pre-employment screening tools, according to theSociety for Human Resource Management. Although that has not changed over the past few years, the number of applicants with blemished credit records has risen with the adverse economy.
Federal law requires companies to get applicants' written permission before pulling their credit histories, but in a tight job market, applicants are less likely to say no.
A bill by Sen. Morgan Carroll, D-Aurora, aims to limit the use of credit histories in employment screening to only those jobs that are relevant to the background, such as financial positions that handle a lot of money or those workers in a position of trust over the elderly or vulnerable.
Business groups are concerned the bill would take away a legitimate tool for screening job candidates, and at least one is opposing the measure.
Sanchez, a 42-year-old father of four boys, said he understands that companies want good employees, but he thinks that relying on a credit history is a poor way to ensure they'll get one.
"My credit now, if you had it, looks as if you're in a position to do immoral things just to get back on your feet," said the former telecommunications and computer-design expert who saw two solid jobs end in unexpected layoffs in the past two years.
Things snowballed: a foreclosure, a surprise hospital stay, the layoff of his spouse, no way to meet mounting bills, a bankruptcy. With the house, Sanchez was suddenly more than $575,000 underwater.
"I had a credit score of over 740, and just like that, I didn't anymore," he said. "But that bad credit doesn't mean I'm going to do bad things."
Sanchez got lucky, despite having to move his family into temporary housing at a low-cost hotel. Today he works in a pawn shop in Aurora, the beneficiary of a boss who he said exercised common sense.
Still, Sanchez is one of thousands of unemployed or underemployed who saw once-stable lives spiral downward with the tanking economy.
Carroll said it's unfair that a bad credit record should keep an otherwise qualified candidate from landing a job.
"How is it you're to get a job if your credit prevents that?" she said. "It should be used to determine how much to lend you, not to determine whether you're a good employee."
Her proposal, Senate Bill 3, is assigned to the Senate Judiciary Committee. A hearing date remains to be scheduled.
Limiting employer access to credit histories is an idea that's gathering steam nationwide.
Colorado is one of 19 states, along with the District of Columbia, that are considering 34 pieces of legislation this year that touch on the topic — whether for a new hire or for a promotion. Seven states, California being the most recent, have passed laws limiting the use of credit information in hiring.
TransUnion — one of the big three credit-reporting bureaus, along with Equifax and Experian — supports using the information for pre-employment screening, but used responsibly.
"(Credit reports) provide employers with an additional tool to help them know more about the individual they are considering hiring," spokesman Clifton O'Neal said. "Employers have clearly illustrated that the use of credit reports holds value for them."
A 2009 bill in Congress looked to amend the Fair Credit Reporting Act and prevent credit checks from being used in employment decisions. It died in committee after it met widespread resistance from heavy-hitting organizations such as the National Retail Federation and the U.S. Chamber of Commerce.
The National Conference of State Legislatures tracks the measures. "With the recession and higher levels of unemployment and additional loss of jobs, when someone does file a job application, there's likely a desire to ensure (that) job seekers are not losing opportunities," said Heather Morton, a legislative analyst at NCSL.
Of the companies that do some form of credit-background check, 47 percent do so for only select job candidates, according to the Society for Human Resource Management. The other 13 percent do so for all job candidates.
What's more, the society's research shows that the results "are seldom used as a definitive hiring criterion."
Groups representing employers are wary. "I'm very concerned about this patchwork quilt of state laws when the federal laws are intended to keep an even playing field," said Lorrie Ray, director of membership development at Mountain States Employers Council Inc. in Denver. "You have to take all information into account; employers should certainly be able to use it when there are funds of a consumer or organization at issue."
Colorado's proposed law could spell trouble for businesses, says the National Federation of Independent Business.
"It gets to a point where small businesses say they don't want to hire someone or add employees since the government keeps telling them what to do," said Tony Gagliardi, director of NFIB chapters in Colorado and Wyoming. "We believe business has the right to own, operate and grow as best as they see fit. Having every tool to aid in the hiring process is their right."
Within reason, Gagliardi added. Credit histories are merely a tool to understanding a person's background, helping show "patterns of behavior" that allows prospective employers a chance to inquire.
"Sometimes it could be illness or medical bills or a layoff," he said. "But if you look and see over seven years all the charge-offs and late payments, then that could be an important pattern."
That's little solace to Glenice Martinez, a 60-year-old paralegal who has been battling to find full-time work but has met with resistance, in part, from a torrid credit history that came from job loss. "I feel as though I'm imprisoned in my own circumstances," the Westminster resident said. "I am held down and not allowed to progress because of my credit history. Employers get to use them and somehow assume I am less than reputable and can't be trusted."
Limiting how companies use her credit information can only help Martinez get back to work.
"I would like nothing better than to pay my bills," she said.
What's at issue
Sen. Morgan Carroll, D-Denver, has proposed Senate Bill 3, which would create the "Employment Opportunity Act," specifying when consumer credit information may be used by an employer during pre-employment screening. The bill would:
• Prohibit an employer's use of credit information in job screening if the information is unrelated to the job.
• Require employers to disclose when adverse action is being taken as a result of that information.
• Authorize an aggrieved employee to bring suit.
Checking your credit
Employers have the right to check the credit history of current or prospective employees, but only with their specific written permission. Here is what else can and can't occur currently under the federal Fair Credit Reporting Act as it relates to employment screening:
• Can use the information to make employment-related decisions such as hiring, promotion, reassignment or retention.
• Cannot legally obtain an employee or applicant's credit score unless it's for actual approval of credit or a loan.
• Must provide written notice that a credit report can be obtained as part of the hiring process, and obtain a signature for release.
• Must provide a copy of the report to applicant or employee before any adverse action is taken.
• Must give an explanation of the adverse action and the contact information of the reporting agency whose information was used.
Job-seekers, employers take sides on value of credit histories