Unemployed workers caught in credit-report trap

For years, employers have used credit reports to help vet job candidates. But in the wake of the recession, the practice has become an unfair catch-22, job seekers and their advocates say.

After months without steady work, tens of thousands of unemployed Arizonans have battered credit records. Those credit blemishes are hurting their chances of getting jobs.

Employers scrutinize credit reports when evaluating candidates for all kinds of positions, from cashiers and police officers to warehouse workers and office staff. Employers don't see the actual credit scores, but credit reports do allow them to see the names of a job applicant's current and past creditors. They can see whether accounts have been paid on time or if a candidate has filed for bankruptcy or had a foreclosure.

Employer groups say that the reports help weed out workers who could commit fraud. In some fields, especially government work and finance, credit can be a deciding factor on whether a candidate is hired.

The issue puts the jobless in a tough situation. They often are saddled with bad credit because they or their spouses have been out of work for an extended time. About 150,000 Arizonans have been out of work six months or longer, according to Frank Curtis, an economist at the state Department of Commerce.

The debate has caught the attention of federal watchdogs.

Last week, the U.S. Equal Employment Opportunity Commission met to air concerns that credit checks were disproportionately affecting women and minority job seekers.

Job hunters, who sign many documents when they apply for work, may not realize that they've agreed to a credit check, said Andrea Baran, an EEOC trial attorney in Phoenix. And if employers use credit checks improperly, job applicants aren't likely to complain.

"People need jobs, and they are less likely to balk about something like that," she said.

For and against

According to a study conducted this year by the Society of Human Resources Management, 60 percent of employers conducted credit checks on job applicants compared with 19 percent in 1996.

Although 47 percent of employers consider credit history, they do so only for candidates for select jobs, the study said. Only 13 percent of organizations conduct credit checks on all job candidates, it said. The checks help employers verify job history and shed light on financial problems that could tempt an employee to steal or misuse customers' personal information.

The National Retail Security Survey found that the U.S. retail industry lost about $14.4 billion to employee theft in 2009.

Financial pressures often are a motivation for employee theft, according to the Association of Certified Fraud Examiners' 2010 review of more than 1,800 workplace-fraud cases worldwide. The study found that living beyond financial means accounted for 43 percent of the cases, and money difficulties accounted for 36 percent of the cases.

Those fraud statistics are disputed by consumer advocates, who argue that the fraud examiners' report suggested that men, older workers and divorced employees were prone to theft, but employers don't screen based on those characteristics.

Caught in the middle

Arizona's unemployment rate is at 9.7 percent, its highest level in 27 years. The housing crash and high unemployment have helped create an unprecedented tide of home foreclosures. State residents also are on track to file a record number of bankruptcies this year - roughly 40,000, which would be 17 percent higher than last year.

That statistic includes Dawn Layson, 40, of Glendale.

The mother of two says she was forced to file for Chapter 13 bankruptcy reorganization in July to save her home from foreclosure because she and her husband fell behind on mortgage payments amid their divorce. In August, she was laid off from her administrative job with a local city after 10 years.

She applied for a secretarial job this month and was told that she had the highest test score among the applicants. Because she knew there would be a credit check, Layson told the human-resources department about her bankruptcy. She wasn't chosen.

"I think that it's unfair to use it as an evaluation tool at this point," Layson said, adding that she thought employers would view her in a more positive light because, under Chapter 13, she would pay her debts.

"I was aware that it (the bankruptcy) would have an impact, but given the current economy, I didn't know exactly how much impact it would have," Layson said.

Enrique Francisco Figueroa, 40, didn't know that missing a payment on his Queen Creek house could make it tougher to get a job.

When he was laid off from his job as a commercial fire-alarm inspector in March 2009, he and his wife began to struggle with their house payments. They sought a loan modification and later a short sale. They also missed some mortgage payments, Figueroa said.

"Our house went upside down, and we tried getting it modified," Figueroa said. "In order to get it modified, you have to miss some payments." Those missed mortgage payments came back to haunt him when he applied for a job with the Transportation Security Administration.

Figueroa made it through several interviews but was rejected because he didn't pass the background check, which included his credit report, he said.

Figueroa and his family have moved to Tucson because his wife's job was transferred. Although he has experience working in engineering testing labs at Motorola in metro Phoenix, he is reluctant to apply for jobs with defense contractors. Many government contractors have strict credit-check policies, he said.

"Even now, I see myself applying for jobs I am way overqualified for," Figueroa said. "I am applying for warehouse worker (jobs) or bus driver, stuff like that."

'A huge problem'

Credit issues are increasingly troublesome, some recruiters say.

"It's a huge problem," said Charles Mitchell, CEO of staffing firm All About People Inc. The Phoenix company finds temporary and permanent hires for companies in 20 states, including Arizona.

Recruiters who work at his firm say that 60 to 70 percent of the job seekers they see self-report that they have some kind of credit problem, Mitchell said.

Black marks on credit records can affect a job candidate in different ways.

Often, it depends on the job and the industry.

Mitchell said such credit problems as a foreclosure, bankruptcy or unpaid bills could make a job candidate ineligible to work for many jobs in banking, finance and government or to work for government contractors.

Other employers may be OK with some credit blemishes, but not others, he added. For example, one employer may be more sympathetic if a job applicant has medical debt, but school officials may consider unpaid student loans a red flag.

Credit records also are scrutinized more heavily for jobs that involve handling cash, credit-card numbers or customers' personal information, Mitchell said.

Bad credit "absolutely narrows the pool of opportunity for them," he said.

Legal protections

Federal law does provide some protection. The Fair Credit Reporting Act restricts how employers can use credit checks to issues of "employment, promotion, reassignment, or retention."

If an employer plans to reject an applicant because of negative information in the report, the prospective hire must be notified and they can dispute the information.

In recent years, four states - Hawaii, Illinois, Oregon and Washington - have limited how employers can use credit information in employment matters. Proposed laws about the issue were considered in 20 states this year, but not in Arizona. A bill, HR 3149, has been introduced in Congress that would restrict how employers can use credit checks.

Dealing with the issue

If you're headed for financial problems, carefully consider how missed mortgage payments, overdue bills or a bankruptcy filing could affect your credit report and your future job prospects, several employment experts said. Seek out help and look for options that will protect your credit.

If you're headed for bankruptcy or foreclosure, consider consulting a lawyer who could help you weigh all possible outcomes, said Phoenix attorney Scott Drucker, who has advised law-enforcement and military clients facing foreclosure.

"If you do have credit problems, be upfront with prospective employers," he said.

by Jahna Berry The Arizona Republic Oct. 25, 2010 12:00 AM



Unemployed workers caught in credit-report trap