The Ethics of Credit Checks

If you’ve ever applied for a loan, a credit card or even certain membership programs, attempted to rent an apartment or finance a car, you’re probably already familiar with credit reports and the multitude of ways yours can be altered to reflect a greater credit risk than you actually are. If you’ve ever applied for a job involving security clearances, sensitive information, access to money or securities, or law enforcement, you’ve probably also encountered the concept of a criminal background check, and the possibility of being mistaken for a career criminal who has the same given name and family name as you, especially if your family name is “Smith.” There’s nothing particularly controversial about either one; assuming nothing fraudulent has appeared on your credit history, a credit check is probably the most cost-effective way for a lender to determine if you’re a credit risk or not, and there are any number of jobs where certain types of criminal background could be problematic. Unfortunately, as with any other tool, these investigations are not always used honestly…

There’s a test case currently in the courts where the Kaplan Higher Education Corporation was cited by the Federal Equal Employment Opportunity Commission for using credit histories to eliminate a disproportionate number of job applicants of African ancestry from hiring consideration. The company is denying the charges, saying that their company supports diversity in the workplace and excludes anyone, regardless of ethnic background, from hiring consideration if they have poor credit; apparently, the need to offer counseling on student loans and financial aid issues would make people with dodgy credit scores problematic. You can read the Los Angeles Times article about the case if you want to, but as usual I can’t help wondering if there isn’t a larger ethical issue involved here…

Members of traditionally underserved communities are much more likely to have had credit issues in their past than majority groups, although it must be conceded that how much more likely depends on whom you ask. Thus, any such qualification, no matter how even-handedly applied, is going to exclude more people from various minority groups from hiring consideration than it will members of whoever is the majority (or best served by the credit industry) group in the relevant community. The real question isn’t whether or not this is going to happen (it clearly will) or even if this is truly a discriminatory hiring practice (simply because it excludes minorities) but rather whether the exclusion is a reasonable business practice in the first place. If the goal here is to provide good financial advice that your customers/students will listen to, then why do you need people with spotless credit to do that? Wouldn’t people who have run afoul of the system and recovered their credit-worthy status be a better choice? More to the point, wouldn’t people who have demonstrated that they can do this be a better choice than innocents who have just had the good fortune to avoid such problems so far?


Of course, if the goal is to avoid either propagating credit fraud or being defrauded yourself, then a criminal background check would be more relevant than a credit check, and someone with an actual history of credit fraud would be more problematic than someone who was jailed for vandalism or drunken driving. But at the same time, I have to question whether individuals who are at risk for commission of such crimes are more likely to listen to someone who had, for example, been caught and punished – or some wide-eyed innocent who has never had a single impure thought. One could legitimately argue that someone who has been through the system has a better idea of not only how to avoid trouble but also why you should want to avoid trouble than someone who hasn’t. So the question is, if people with less than perfect records can provide better service, and if hiring based on ability rather than past credit history is a superior moral position anyway, do we have an ethical responsibility, to society or to our employers, to hire such people? Or do we have a responsibility to cover the company’s metaphorical behind by only hiring people whose records indicate that they are absolutely beyond reproach?

It’s worth thinking about…