You are deep in debt, out of work and in desperate need of a job when a prospective employer asks a question you weren't expecting: "Can we look at your credit history?"
Many people in this predicament face a lose-lose situation, experts say. Deny permission and that prospective employer might think you are hiding something and automatically pass you over. Give them an OK and, when they see what a mess your finances are, there's a good chance you won't get the job anyway.
And even if your finances are sound, you may come away feeling your privacy has been invaded.
With an official unemployment rate near 10 percent nationally — 14 percent for Michigan and nearly 15 percent for metro Detroit — more people than ever are being affected. But, from the perspective of job applicants, it is largely an issue without a champion.
Proponents of the practice — including the companies that turn a profit selling your credit history — have deep pockets and lobbyists. But those looking for jobs are mostly on their own, with little recourse available.
One thing is certain: The practice is on the rise.
A nationwide study conducted in 2009 by the Society of Human Resource Management found that, among employers surveyed, 60 percent said they obtained the credit history of some or all of those applying for a job. In the late 1990s, a survey by the same organization found that only 42 percent of the employers questioned used credit checks.
Michigan House Bill 4528, sponsored by Rep. Jon Switalski (D-Warren), is an attempt to help the state's beleaguered job seekers. The bill seeks to prohibit the vast majority of employers from asking applicants for permission to check their credit. If the bill becomes law, employers who fail to adhere to it can be sued by those seeking work.
Only specified employers such as banks, credit unions, accounting firms and casinos would be exempt, allowing them to ask prospective employees for permission to review their credit histories.
Although Michigan's high unemployment rate means this is a particularly pressing issue here, it is a matter getting attention across the nation.
Switalski's bill is similar to others that are under consideration in other states, including Connecticut, Illinois, Maryland, Missouri, New Jersey, New York, Ohio, Oklahoma, South Carolina, Vermont and Wisconsin. Bills restricting an employer's use of credit information have been approved in Hawaii, Oregon and Washington state.
There's also a push on the federal level: U.S. Reps. Steve Cohen (D-Tenn.) and Luis Gutierrez (D-Ill.) last year introduced the Equal Employment for All Act, which would prohibit companies from using credit reports as part of the hiring process "unless the job involves national security, FDIC clearance, or significant financial responsibility (such as bank managers, loan officers, or financial managers)," according to information about the bill posted on Cohen's website. Sen. Dianne Feinstein (D-Calif.) has introduced a similar bill in the Senate.
Obtaining credit data started becoming more commonplace for employers during the 1990s, when technology and marketing converged to make acquiring the information fast, easy and cheap, says Lewis Maltby, president of the National Workrights Institute in Princeton, N.J. The nonprofit's stated goal is to "improve the legal protection of human rights in the workplace."
"This started as a way to look at people applying for high-level positions, and it's just out of control," says Maltby.
One problem, Maltby explains, is when employers use credit scores as a way of evaluating a prospective employee's competence.
"Poor credit generally has no bearing whatsoever on an individual's ability to do a job — and I'm talking 90 percent of jobs," Maltby says. "People should have the right to say no to this.
"Personal finances are the most private of matters. We don't discuss it in public, or even with our families," he says. "It's more private than sex. In some cases, you can read about or even see people's sex lives on the Internet. But I defy you to find someone disclosing their personal financial information."
Those who represent employers and the credit reporting industry feel differently.
Norm Magnuson, the vice president of public affairs for the Washington, D.C.-based Consumer Data Industry Association (CDIA), a trade group that represents credit bureaus, defends the practice of obtaining credit data as a tool available to employers trying to find qualified candidates.
Instead of trying to protect the interests of financially strapped job seekers in a down economy, the focus should be on helping companies struggling to weather this storm, proponents of credit checks say.
"Now is not the time to start placing a lot of control on employers," he says. "It's a difficult time for them too, and they have a stake in making sure the people they hire are honest."
In addition, there's a fiduciary responsibility on the part of those doing the hiring that also needs to be taken into account, Magnuson points out.
"There's also an environment in which employers can be found legally responsible if they hire someone who [financially] damages a company," Magnuson says. "In court, it can be said that the employer should have known better."
Eric Ellman, the vice president of public policy and legal affairs for CDIA, says legislators jumping on the anti-credit check bandwagon are mistaken. "All employers are not doing this for every position," he said. "These checks do cost money."
But they don't cost very much, says Maltby, who equated the cost of running a credit check on a prospective employee to making an "impulse buy at the supermarket."
An online check for this story found companies that would provide credit information for as little as $35.
Switalski, the sponsor of the bill, says the issue came to his attention when constituents, who had lost both their jobs and then control of their finances as a result, began approaching him with concerns about prospective employers wanting to look at their credit reports.
These people, he says, need a break, now.
"People lose control of their credit for all sorts of reasons — and they're people who worked regularly and paid their bills until they lost their job," says Switalski.
The dilemma creates what at least one observer referred to as a Catch-22 situation: You lose your job and, after time, begin to experience severe credit problems, possibly even a home foreclosure. But then, if you start to show a poor credit history, finding the employment needed to address those financial problems becomes more and more difficult.
Among those most likely to be caught in this trap, says Switalski, are those lowest on the economic ladder. "Credit checks are discriminatory to low-income workers who are trying to get by," Switalski says.
It is, he says, inherently unfair in most circumstances.
"I think we know that an inability to pay one's bills is not indicative of their ability to be a good employee — you can even argue the opposite is true," he contends. "If a person is in debt, they may work harder to climb out.
"A CFO [Chief Financial Officer] has responsibility for money, and maybe how he handles his personal finances is an issue, but the cashier at corner mini-mart has no such discretion. If they take from the till, that's a limited amount of damage that can be to the mini-mart."
Adds Switalski: "The bigger problems lie with people with fiduciary responsibility. I'm sure Bernie Madoff had outstanding credit."
In Michigan, employers, with the permission of job applicants, are currently able to access information about debt load, liens and past collection actions a job applicant may have been subjected to, but are not privy to actual credit scores.
Switalski is hopeful his bill will be approved because the exemption granted to certain employers should make the legislation palatable to pro-business legislators.
"A similar bill was introduced in the Michigan House a few years ago, and it was approved, but the Senate failed to take up the measure," he said. "The difference between [this new] bill and the previous one is that there are exemptions for people with fiduciary responsibilities at banks and other institutions."
Even so, Maltby, of the National Workrights Institute, sees formidable foes lining up to defeat bills restricting credit checks by employers.
"It's going to be difficult for lawmakers to get legislation that would really curb this practice, because employers resist any and all legislation — good, bad or indifferent," he says. "Also, the credit industry itself is against these measures because they make millions by marketing their services to employers."
Switalski, however, has been able to find some allies.
Among the supporters of the legislation is the Michigan ACLU, which testified in favor of the bill at a March hearing in Lansing. Shelli Weisberg, the organization's legislative director, points to the vulnerability of job seekers in an economy where so many people are unemployed.
"If you're looking for work, you're in a weaker position," she says.
Another supporter is the Michigan League for Human Services, which says it has seen requests for financial assistance explode during the past two years.
"We have a huge numbers of people that are losing jobs and losing homes," says Judy Putnam, the league's director. "Of course, their personal finances are going to be affected by what's happening in Michigan."
Maltby, who worked in human resources for several years before becoming an advocate for worker rights, says the legislation has much merit: It protects the interest of job applicants with good and bad credit, and it doesn't hurt employers.
"Employers have the latitude to get the information they need — what they should be entitled to — in order to make an educated hiring decision," he says. "If employers started to do thorough interviews and call former employers when they're looking for people, we'd be better off."
Switalski asserts that if his bill were put to voters, it would be approved overwhelmingly. Still, don't expect to see it on the ballot anytime soon.
"I don't have a million dollars to do that, though I'm sure voters would respond our way," he says. "This isn't the kind of issue that people with money get behind, unfortunately."
"I know this," Switalski adds. "If we're going to recover in Michigan, we need to find a way to help the huge number of people in the labor market who need a chance to work again. Employers should be part of the solution."
Molly Tippen is a Garden City-based freelance writer. Contact her at email@example.com.