Proposed ordinance combats widespread burden of credit check based discriminaton
A proposed law preventing employers from negatively judging applicants and existing hires based on poor credit scores received largely positive responses during last week’s hearing. Sponsoring councilors Andrea Campbell and Ayanna Pressley said testimony revealed an even more widespread burden of credit-based discrimination than they had realized, underscoring the need.
“We heard about even more populations experiencing discrimination than we otherwise may have realized,” Pressley said at the hearing’s conclusion.
If the ordinance is enacted, employers in Boston will no longer be allowed to obtain or use individuals’ credit information when considering hiring, discharge, tenure, promotion or discipline.
When they originally filed for the hearing, Pressley and Campbell emphasized that credit scores frequently contain inaccuracies and that a person’s credit history can be damaged for reasons that have no bearing on their ability to do the job well — such as student loans or expenses incurred after a layoff, divorce or from a personal or family medical emergency.
Employer use of credit checks can impose a barrier to economic advancement for those most in need: Low-income individuals are less likely to have savings to draw upon during emergencies and consequently may be forced to run up debt, which in turn damages their credit score and their chance to get back on their feet. Those who have been victimized by predatory lenders also are greatly affected.
In many cases, the value of credit checks to employers is unclear, Campbell said.
“Research and studies show no evidence of strong correlation between someone’s credit report and how well they will perform on the job or their employer’s losses,” Campbell said.
The ordinance would permit credit checks only if it seems directly relevant to the job. That includes instances where the potential hire might have significant financial responsibility, handle financial information past what is standard in a retail transaction, set policies for a business, handle confidential information or participate in law enforcement.
Councilors and other supporters who testified said that credit checks can stand as a barrier to opportunity for those trying to improve their lives. The only flashpoint of contention: some business groups preferred the issue be handled at a statewide or federal level, not municipal.
Common causes of bad credit can include expenses resulting from layoffs, medical expenses, and divorces as well as debt from student loans.
During the hearing, councilors and those giving testimony said that credit scores also may become damaged for reasons even further outside of a person’s control — such as eviction during their childhood or simply too many companies looking at the credit report within a short time period.
“The mere fact that your credit report is being accessed can ding your credit. I’m not entirely sure why. It can raise red flags for folks,” said Matt Brooks, an attorney at the Greater Boston Legal Services
Although credit reports are not supposed to reflect any information older than seven years, this is not always the case, and the sheer number of small credit reporting agencies makes compliance difficult to monitor, Brooks said.
As a result, childhood events also can follow you on your credit report. Some parents take out loans in a child’s name, Pressley said. Another example: When some landlords file evictions, they list everyone on a family’s lease — including children. When the children grow up, the eviction may still appear on their credit reports, said Pauline Quirion, director of the CORI grant program for the Greater Boston Legal Services.
“It can happen when you’re five, and later on, potential landlords get the data,” Quirion stated
Credit damage may come more maliciously. Some domestic abusers run up debt on their partners’ credit scores to inhibit the victims’ abilities to move on, Quirion said, and Pressley pointed to identity theft as another concern.
Victims of predatory lending and other financial schemes, such as those targeted for subprime loans during the foreclosure crisis — or more recently, those hit with unauthorized credit card and deposit accounts by Wells Fargo — also would see credit damage. In the case of Wells Fargo, customers may have had their credit dinged for unpaid or late fees on accounts taken in their name without their knowledge, and unauthorized extra credit cards may also impact their score.
Often, it is difficult for employers not trained in interpreting such reports to distinguish the reasons behind the credit scores they see, Brooks said.
Errors and confusion
Flaherty noted that when he refinanced his house, not only did his credit history appear on the credit check but also the histories of other Michael Flahertys — including his father, two cousins and more than one neighbor. While the councilor was fortunate that their credit was fine, not everyone is as lucky.
In such cases, he noted, the onus is on the individual to prove which one they are — and not everyone the time, given work, family obligations and school to set the record straight, which can be an intensive process.
“It’s not like you can call up and say, ‘Hey, that information that showed up — it’s not me’ and they say, ‘Oh sorry,’ and take it off,” Flaherty said. “You have to jump through hoops and hurdles. It’s a disaster.”
The Federal Trade Commission reported in 2013 that 25 percent of consumers had errors on their credit reports that could affect their credit scores.
Ryan Kearney, general counsel of Retailers Association of Massachusetts, told the Banner in a phone interview that, while his organization does not use credit checks, the fact that some retailers do indicates a perceived benefit and retailers should be allowed to handle business as they see fit.
“Our opinion as an association is that retailers should have the freedom to go ahead and use credit checks and run their business as they choose to,” Kearney said.
Kearney also said his organization is concerned that a citywide restriction on credit checks would create an uneven playing field for retailers competing with businesses in other cities. Any policy should be state- or nationwide, he said.
“Some of these regulations at local level create winners and losers depending on where the business is located,” Kearney told the Banner.
Similarly, Aaron Green, a representative from the Massachusetts Staffing Association, said during testimony that while his organization supports the intentions of the city ordinance, members want clearer language stating that firms with employees in multiple cities would only have to comply for those of their employees working in Boston.
One goal of pushing for municipal policy is to spur state action, Campbell said during the hearing. A similar bill passed unanimously in the state senate in July, but the house did not vote on it before the close of the legislative session.
At the federal level, Senator Elizabeth Warren and Tennessee Rep. Steve Cohen have advocated for passage of an employer credit check ban.
The Greater Boston Chamber of Commerce submitted written testimony in support of the ordinance.