Colorado Hopes to Prevent Credit Checks for Job-Seekers

A number of states, including California, Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington, have recently passed laws restricting the use of credit reports as part of pre-employment screenings. Now, the state of Colorado is also looking to enact similar measures in an effort to prevent what many see as unfair discrimination based on personal financial history.

Negative information on a credit report can often be the result of circumstances out of the applicant’s control, such as overwhelming medical bills or unexpected job loss. In other instances, a consumer may have chosen to not pay a bill as their only recourse for a poor product or lack of service. Because credit reports fail to illuminate all the individual reasons why an applicant may not have paid their bills, many argue it is hard to judge someone’s character or potential work ethic based on this type of mass-calculated report.

Last year, California passed a similar law to further protect applicants from having their credit reports used against them in the hiring process, despite a lack of support from business owners. In fact, the National Federation of Independent Business (NFIB) strongly objected to the law, claiming small business owners need these type of screening procedures to avoid costly mistakes in hiring decisions.

While many employers agree they are willing to consider the individual circumstances that led to negative information on a credit report, they often conclude a simple lack of responsibility is the cause. But it can be difficult to make these judgments based on a credit report alone, and while legally, applicants must be notified if any negative information on their background check, including infractions on their credit report, are cause for disqualification, they are often taken out of the running before even being given a chance to explain any unique circumstances.

Laws like the one Colorado is trying to pass would help to protect applicants with poor credit, which is often the result of being laid off, from getting sucked into a downward spiral of job loss. There is concern that if action is not taken, the economy could be creating a class of unemployable people. The bill’s sponsor, Democratic Senator Morgan Carroll, argues that employers should be focused on an applicant’s other qualifications when making their hiring decisions rather than credit reports. “If it actually gave a clue about an employee’s job skills, that would be a different discussion,” she said.

Of course some exceptions would be made for applicants seeking jobs that require them to handle large amounts of money. Yet, many small business owners do not feel this enough. While the debate is likely to continue, in Colorado and other states considering such laws, legislators will continue to try to strike a balance between the interests of businesses and protecting consumers from unfair discrimination.