Should employers be allowed to run credit checks on job applicants?

The practice of employers running credit checks on job-seekers isn't new. But it is the target of some new blowback. Nine states — seven of them since 2010 — have passed laws restricting employers from running credit checks on job applicants before making a hiring decision, on the grounds that such checks discriminate against workers.

Credit agencies have been selling credit information to employers since the 1990s — and 47 percent of companies still use this data, often for hiring decisions surrounding low-paying jobs, says the New York Times. Why? Steven Burman, founder and president of Credit Advocates, a nonprofit in New York that helps consumers who have credit problems, acknowledges to the Times that even he uses these checks for every hire:

Of course, some consumer advocates disagree with this rationale. And the evidence is mixed at best.

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Another potential reason that employers use credit checks: Negligent hiring lawsuits are on the rise. "If an employee's actions hurt someone, the employer may be liable," says Privacy Rights Clearninghouse, a California-based consumer advocacy nonprofit. "The threat of liability gives employers reason to be cautious in checking an applicant's past. A bad decision can wreak havoc on a company's budget and reputation as well as ruin the career of the hiring official. Employers no longer feel secure in relying on their instinct as a basis to hire."

Regardless of the rationale behind these credit checks, this practice can be discriminatory, say Daniel Garodnick and Amy Traub in the New York Daily News. For instance, "African-American and Latino households are disproportionately likely to report poor credit, a finding some attribute to the nation's deep racial wealth gap and to predatory lending that has targeted communities of color." Garodnick and Traub continue

Low-income and minority Americans aren't alone in feeling the impact of this practice. Almost 25 percent of credit reports contain serious errors. Plus, thanks to the lousy economy of the last few years, more and more Americans have found themselves in a terrible cycle: Being laid off led to unpaid bills, which led to bad credit, which led to not being able to find a new job. The result is that qualified workers are barred from new jobs, say consumer advocates.