SHRM Almost Gets It Right On Credit Checks

SHRM's position on background checks differs little from the Chamber of Commerce. (Photo illustration by Dreamstime).

What’s the saying? Close only counts in horseshoes or hand grenades?

If that’s the case, then a valiant effort by the Society for Human Resource Management to demonstrate they had an understanding on key issues regarding credit checks being used in employment decisions went to waste yesterday in testimony before the EEOC.

It started off surprisingly well with Christine Walters, SPHR (the person chosen by SHRM to speak on their behalf) opened with this statement:

To be clear, we believe that employment decisions should be made on the basis of an individual’s qualifications – such as education, training, professional experience, demonstrated competence – and not on factors that have no bearing on one’s ability to perform job-related duties. Furthermore, SHRM and its members fully appreciate that the high unemployment rate and overall health of the economy in the U.S. have had a severe impact on countless individuals’ credit history.

It went downhill from there, though.

Making the case for unfettered access to credit checks

Throughout the written statement provided by SHRM (available here as well), Walters repeatedly made the case for keeping the status quo of unrestricted access to credit checks (assuming Fair Credit Reporting Act authorization is met) while subsequently diminishing the importance of credit checks to the overall employee selection process. She also chose to highlight the so-called protections of the FCRA by pointing out that an employer couldn’t run a check without authorization, and that they had to inform the person if they made a decision based on the information, and allow them to challenge the accuracy of that information.

In addition to FCRA, she states that many regulating bodies include credit checking as part of their recommendations or guidelines. Other bodies have found that living beyond a person’s means and experiencing financial difficulty were more likely to commit theft or fraud in the workplace and thus recommended credit checks (and I’m assuming denials based on that information) as a way of proactively fixing the issue.

Lastly, Walters focuses on the fact that very few employers do across the board credit checks and that credit checks typically factor in the least out of all the factors in an employment decision. While I can’t think of a single private company that needs to do credit checks on all of their employees, what Walters seems to be implying is that only 13 percent of employers using credit checks inappropriately is enough of a case to show that the business world is handling credit checks responsibly.

A matter of protection

With respect to Ms. Walters, her written statement could have been replaced by the one from the U.S. Chamber of Commerce and hardly anyone would have noticed. They play the role of the unapologetic business side of the argument just fine.

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Arguing that FCRA is a protection from unfair hiring practices is like saying reading someone their Miranda rights before being arrested helps prevent illegal arrests. Notification and authorization (especially when you have an incentive like a job in front of a candidate) gives the employer the upper hand in all cases.

It also helps to mention that none of these bodies recommend credit checks for every single employee. Right now, other than a few states that have banned the practice, you can credit check anyone in your employment process. The only federal guidance has been vague instructions about limiting disparate impact, and until a case goes through that sets a precedent (or Congress acts to define these limits), you’re going to have well-meaning companies getting caught up with companies that indiscriminately use credit checks.

Most of the states that have acted so far have put reasonable limits on credit checks in regards to employment. If you have significant fiduciary responsibility, a credit check (along with all of the other information) may be applicable. Otherwise, the impact on predicting performance and the reliability to predict fraud or theft doesn’t exist and may cause disparate impact.

The bottom line: little difference between pro-business and pro-HR?

What I continue to be disappointed with is the lack of nuance in SHRM’s positions in front of Congressional committees over the years with regards to employee/employer issues.

Aren’t we beyond parroting what pro-business types have to say? Is the desire to be respected as a business organization hindering SHRM’s ability to offer a unique voice that’s careful to consider HR’s unique position in the business world?

If they truly believe that “employment decisions should be made on the basis of an individual’s qualifications – such as education, training, professional experience, demonstrated competence – and not on factors that have no bearing on one’s ability to perform job-related duties,” shouldn’t they choose to stand up for thoughtful (and inevitable) legislation that keeps both the employer and employee’s interests at heart?

Lance Haun is the practice director of strategy and insights for The Starr Conspiracy, where he focuses on researching and writing about work technology. He is also a former editor for ERE Media, broadly covering the world of human resources, recruiting, and sourcing. 
He has been featured as a work expert in publications like the Harvard Business Review, The Wall Street Journal, Fortune, MSNBC, Fast Company, and other HR and business websites.
He's based in his Vancouver, Wash., home office with his wife and adorable daughter. You can reach him by email or find him off-topic on Twitter.