Credit Check Ban may be Hurting more than Harming

Posted May 13, 2016 by Mary McGinley

While the passing of laws that banned the use of credit checks during the hiring process have been put into place into a number of states, according to a recent report from an economist with the Federal Reserve Bank and an educator at Harvard University, those laws could be hurting the very people they were intended to protect.

According to Robert Clifford, an economist at the Federal Reserve Bank of Boston, and Daniel Shoag, an assistant professor at the John F. Kennedy School of Government at Harvard University, the inability for employers to make credit checks on would-be employees makes employers lean more on education and experience as differentiators.

Using data obtained from both the Federal Reserve Bank of New York Consumer Credit Panel/Equifax, Clifford and Shoag compared the credit information with data on employment outcomes from the LEHD Origin-Destination Employment Statistics produced by the U.S. Census Bureau. They found that in the 11 states where the laws are in place and comparing it to the states where there are no such bans on credit checks, employers would demand far more in terms of qualifications such as education and experience. In those states with bans, employers were far more likely to require a bachelor’s degree and a minimum of 3 -5 years of experience in a field as a result.

This means that young workers and workers who don’t have a college degree could be at a competitive disadvantage in these states.

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