Are credit checks a helpful hiring tool?

Are credit checks a helpful hiring tool?

Are credit checks a helpful hiring tool? While the US is clamping down on candidate credit checks, the practice is becoming increasingly popular in Canada – but is it a form of discrimination or do they really help HR make better hiring decisions? HRM investigates.

Picking up pace

Made popular by the financial industry, the use of credit checks to screen potential employees has now reached the mainstream – even the federal government recently introduced mandatory checks for all public servants – but employees, and unions, aren’t happy.

Representatives have criticised the policy as “an unnecessary invasion of privacy” and expressed concern that it could be used in an arbitrary way.

The federal government defended the decision and Treasury Board spokeswoman Lisa Murphy said; “This practice is common in certain private industries to indicate excessive indebtedness that may increase temptation to commit unethical acts.”

Bad credit, likely criminal?

But does a history of debt point to a future of crime?

One study found a job applicant with a troubled financial history was almost twice as likely to engage in theft as an applicant who lacked any financial history issues,” said TransUnion Canada spokesperson Clifton O’Neal.

As one of the country’s leading credit-reporting agencies, TransUnion Canada vehemently supports the use of its data when determining a person’s employability – data which they say could save employers from making costly hiring mistakes.

 “The top two red-flag warnings present in these crimes were instances where the individual was living beyond his or her financial means or experiencing financial difficulties,” O’Neal added.

But one Ontario jobseeker who recently had an offer rescinded by TD Insurance says he should not be labelled a thief just because of a poor credit report.

The debt effect

The anonymous jobseeker was offered a conditional insurance advisor position only to have it retracted weeks later when his unfavourable credit report was revealed.

After being out of work since August, he’s fallen behind on some bill payments, has approximately $14,000 in debt plus a mortgage and car loan – but being passed over because of his financial history is only going to create a catch-22 situation, says one expert.

“There’s a certain irony that the people who are most vulnerable and who most require access to jobs could be discriminated against because they have poor credit ratings,” said Murray Rowe Jr., president of credit advisory group, Forrest Green.

“I think it's important we understand that the ramifications of leveraging credit bureau data are quite profound,” he warned.

Data discrimination

The rejected Ontario jobseeker told Huffington Post Canada that the practice felt more like discrimination than savvy candidate screening.

“They rejected me solely based on whatever my credit check came back as,” he said. “It just seems absurd to me. I have no criminal record, no history to suggest I am a bad person, just a credit score reflective of poor economic times. In my opinion, it seems like discrimination.”

It may feel unfair to him but, according to employment lawyer Daniel Chodos, until Ontario’s Human Rights Code explicitly protects discrimination on the basis of economic status, any legal claims from the jilted jobseeker would hold very little weight.

What do you think? Should HR take a candidates credit check into account or is it an unfair assessment of their character? Share your thoughts below.

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8 Comments
  • Daphne 2015-04-23 1:51:16 PM
    This is discrimination based on percieved criminal behaviour. If I were still working as a Human Rights investigator, I would challenge these employers to prove that credit checks constitute a bona fide occupational requirement.
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  • R Menon 2015-04-23 2:04:58 PM
    Mike Duffy is a good example of an unethical employee with probably a great credit rating. I'm no one saw this criminality coming.

    Labelling people unemployable due to a low credit score is clearly unethical. I understand criminal checks, but credit checks doesn't explain labelling a candidate as a thief or of criminal mentality.

    People could be struggling with debt due to many reasons:
    Loss of job
    Divorce
    Sickness
    Education / student debt
    Some other crisis beyond the person's control

    There has to be a better way than using a credit score to determine criminal tendencies of a candidate.
    Post a reply
  • Tammy 2015-04-23 4:09:43 PM
    I feel that credit checks are a breach of privacy and is an unfair assessment of a persons character. This check has no bearing on how a person performs at the workplace. How is a person going to pay off debts if they are not generating earnings and are having difficulties getting a job when HR professionals are using this information to help decide on a candidate. The fact that the individual is trying to obtain employment indicates the he/she is trying to improve their overall situation.
    Post a reply