Up & Downs of Credit Checking
mwild31
1,441 Posts
Hi everyone - I need your help. Among my numerous tasks at work, I also help out a small group of businesses associated with our president with a little HR work. One of those businesses would like to pursue, in addition to criminal background checks & education verification, credit checking as well. I'm not a fan of credit checking and consequentially know very little about the process, but it's not my business & they would like to go forward. My question to you wonderful folks is what are the reasons companies do credit checking, when do they do it (pre-hire/post-hire), how is it used in the selection process, what are the legal obligations & what are the 'cons' of having such a program? As background, the position involved is a consultant that would go to worksites & teach Lean Manufacturing Practices. The individual does not have access to cash or check writing responsibilities, but will have access to company credit cards & may, in times of emergency, have to use their own credit card to catch flights (will be reimbursed later - the company only has an American Express account & say that not all organizations accept AE). Thank you for your assistance - I anxiously await your responses. (p.s. while I'm waiting I will go check out the FCRA website.)
Comments
We do not have such a policy (that I'm aware of). We do have an AMEX business account (and a policy forbidding the personal use of this card) and AMEX has the right to deny a card to any ee based upon its guidelines. But we do not terminate a person for not qualifying under AMEX guidelines.
One point to remember, you may not discriminate against an employee that has filed for personal bankruptcy protection.
I think the main reason companies do credit checks is because they believe it some how reflects upon a person's character (honesty, values, criminal intent, if any) and therefore is a good predictor of future behaviors (finance related or not).
I worked for a company that was very strict about sales people's credit background because in that position they are checking customer's credit themselves (huh? I didn't get the correlation).
The companies I've worked for that check credit (as well as criminal) do so post-offer but pre-hire. Usually, it is written in as a contingency of the offer (i.e. "this offer is contingent upon successful completion of a consumner report / background check to include blah blah blah").
I have seen it affect the selection process pretty severely. It tends to adversely affect ethnic minority and single parent candidates.
As far as legal obligations go, the company has to (of course) have a signed release to do any checking as well as be in compliance with the FCRA. In some states I believe you have to give the candidate a copy of the report if they ask for it as well as the name and contact info of the third party that prepares the report. I'm sure there's more that I am missing that the other formites will add.
The cons of such a program are numerous. Take a gander at these:
1. Identity theft is HUGE. Getting things taken off your credit report that you didn't even do is like pulling teeth.
2. Good candidates/employees can make bad financial decisions. They get sick/injured, get divorced, get laid off, take care of sick relatives, get scammed, have financially irresponsible spouses, etc. It doesn't mean they are stupid or bad people, it means sh#t happens. It doesn't necessarily reflect on a person's character or predict certain behaviors.
3. You're always walking a legal tightrope with the FCRA.
4. It WILL adversely affect certain groups of people. A problem for those of us with AAP's.
5. It's a lot of paper work - policies, decision trees, blah blah blah.
6. It's costly, especially if the company chooses to run checks on current ee's or more than just the final couple of candidates for each open position.
By the way, I have excellent credit. ;;) Some may think I'm so against credit checks because I have bad credit so that why I added that in.
Cinderella
1) financial pressure to commit the act
2) opportunity to commit the act
3) ability to rationalize the act
When all 3 pieces of the triangle are in place, you have created liklihood for fraud. The last article I read said that 30% of employees actively look for ways to commit fraud or embezzle from their employers (take it for what its worth.)
When hiring new employees, you really don't know whether they could rationalize such an act, so there's not alot you can do with that piece of the triangle, other than complete background checks. But you do know that they have the opportunity with company credit cards, so 2nd piece of the triangle is in place. The purpose of employee credit checks is to eliminate that first piece of the triangle - financial pressure to commit the act.
We do ours post-hire (when we do them), but pre-employment. Offer of employment is withdrawn if credit checks disqualify the applicant. They are entitled to receive a copy of the credit report if it resulted in adverse employment action.
Kathi
When it comes to "opportunity" - this is where I can see it is advisable to check credit on ee's like the controller or CFO. However, a "rank and filer" with a corp credit card? I don't think it's necessary. The charges should be explained, reconcilled, and approved by more than one person monthly or another regular basis. Any company that gives out corp credit cards like candy is going to have trouble - ee's with bad credit or not. Cut the amount of cards that are floating around, put limits on them, terminate those who use them inappropriately / break policy, and prosecute theives.
Cinderella
It is just information and as many have pointed out, can lead you to questions of character.
In my early years I was a CPA in a major national firm and we all got the story of the little old lady who was the teller supervisor in a mid-sized, midwestern bank. No financial pressure, great credit, and plenty of opportunity. When she finally retired, they discovered she had embezzled something like $2.5 million. She spent the money adopting third world starving children.
Edit: The point is, people's motivations can still surprize you. Even the most reasoned approach cannot eliminate all risk.