Sen. Elizabeth Warren is drawing praise from progressives for her legislation that would bar companies from requiring prospective hires to submit to a credit check as a condition of employment.
“This is about basic fairness — let people compete on the merits, not on whether they already have enough money to pay all their bills,” said Warren, a Massachusetts Democrat. “A bad credit rating is far more often the result of unexpected medical costs, unemployment, economic downturns or other bad breaks than it is a reflection on an individual’s character or abilities.”
A few things: First, the credit reports employers see don’t even include the score — or “rating,” as Warren put it. Rather, they show the credit report itself.
This isn’t a minor distinction: While a low credit score could reflect any number of causes (from medical bills to missed payments on a boat loan), the credit report includes comprehensive information on the applicant’s credit history. If the only delinquent accounts are medical bills, employers will see that; they will also see if the source of turmoil is boat loans, timeshares and a Neiman Marcus store card.
The fact sheet for Warren’s Equal Employment for All Act explains that “There is no evidence to suggest that credit is an indicator of one’s work ability”; in subsequent interviews she amended “no evidence” to “little or no evidence.” That’s more accurate, but it’s far from a settled matter.
There is abundant research suggesting that financial stress has a negative impact on job performance. A 2011 PricewaterhouseCoopers survey found that 29 percent of U.S. workers report that personal-finance issues have been a distraction at work, and 48 percent said that they had handled personal-finance matters during work hours. So while Warren is right that there isn’t definitive proof that a poor credit history predicts poor job performance, employers are hardly irrational for looking at it.