09/01/2010 02:26 pm ET | Updated May 25, 2011

Credit Reports Only Where Credit Is Due

Almost every day I hear from constituents who are struggling to find work, keep a roof over their heads or pay their medical bills. These daily struggles are commonplace across the country. Now there's another phenomenon that adds insult to injury: in the midst of an economic crisis, employers are increasingly using credit reports to deny jobs to applicants. In this economy, using someone's financial struggles to deny them a job isn't just unfair to individual job seekers; it hurts the economy and our ability to recover.

On August 10, the Chicago Tribune argued in an editorial against a new Illinois law preventing companies from using credit reports in hiring by stating that, "experts say there is evidence that workplace theft and fraud correlates with the financial distress indicated by bad credit" and that there is no downside to using credit reports to determine whom to hire. I couldn't disagree more. I'm willing to bet that Bernie Madoff had a sterling credit report, right before he was arrested for perpetrating one of the largest financial frauds in American history.

I am proud to be the lead co-sponsor of the Equal Employment for All Act (H.R. 3149), introduced by Congressman Steve Cohen (D-TN), which will ensure that unfair credit checks not hurt job-seekers and the economy by keeping qualified people out of work.

A recent survey by the Society for Human Resource Management found sixty percent of employers are using credit reports on at least some applicants, up from just thirty-five percent in 2003. Employers justify using them because they supposedly measure one's character. But here's the fundamental problem: for a majority of people, poor credit doesn't stem from irresponsibility or bad decisions, but rather from life circumstances and bad luck. And the problem is getting worse; 43.4 million people -- 1 in 4 Americans -- have credit scores that mark them as poor credit risks for lenders and now this may affect their job prospects, too. According to the Federal Reserve Bank of New York, the percentage of consumers with collections on their credit reports has doubled in the past decade.

Let's take the case of Debra Banks, a woman from Hawthorne, California who has been looking for a job for over a year. Debra has years of experience, stellar references, and a certificate in accounting. However, she has been rejected from several jobs due to her credit report that lists a series of medical bills that are in dispute. She was even denied a temporary job she had previously held -- and performed with distinction -- because the employer had since adopted a credit check policy. Debra is not alone: 60 percent of personal bankruptcies are linked to medical debt. Are these people really less likely to do their jobs well?

Credit checks in employment also reinforce patterns of discrimination in American society. According to one Texas study, African Americans and Latinos have credit scores that are 5% to 35% lower than those of whites, due in part to predatory lending, foreclosures, unequal educational opportunities, and the historical wealth divide. This means that when employers check credit, Latinos and African Americans are usually starting with a deficit and are put at a disadvantage, raising serious civil rights concerns.

Even TransUnion, the credit reporting company that has fought hardest against regulation of credit checks, has admitted that, "At this point we don't have any research to show any statistical correlation between what's in somebody's credit report and their job performance or their likelihood to commit fraud."

So if credit checks reinforce discrimination, don't accurately measure financial responsibility, and don't dependably predict job performance, why are so many employers using them? The answer is not altogether clear, but we do know that the multi-billion dollar companies that create and sell credit reports are heavily invested in marketing them to wider and wider audiences. This includes insurance companies, hospitals, landlords, and now, employers.

I fully expect credit reporting companies to lobby against our federal bill as they have against bills at the state level. However, as more Americans find out about how unfair it is to others and how unfair it could be to them, the chorus of voices opposed to using credit reports in hiring will grow. Already, organizations that have led the fight against employment discrimination -- UNITE HERE!, the Lawyers Committee on Civil Rights, the NAACP, National Council of La Raza and the National Organization for Women, among others -- support our bill.

On Monday, I held a town hall in Chicago that was attended by hundreds who came from as far away as Detroit, Boston and L.A. to express their concerns about this insidious employment practice. We heard time after time stories of discrimination in employment that only reinforced the necessity of passing this legislation. It renewed my resolve and commitment to working with Rep. Cohen and the supporters of this legislation to get this legislation passed this fall.

Our bill is an important step in ensuring that a widely used and unfair measure of creditworthiness plays no part in the hiring process or in preventing industrious Americans from contributing to our economic recovery.

Luis V. Gutiérrez represents the Fourth Congressional District of Illinois and is the Chairman of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit.