Fair Warning: This video is probably “not safe for work” (NSFW)
Last Sunday on HBO’s Last Week Tonight with John Oliver, the host of the eponymous* program presented an 18-minute indictment of credit bureaus and criminal background screening companies.
How accurate were Oliver’s assertions about these companies, whose reports affect the ability of millions of Americans to obtain credit, rent an apartment, and find work?
I fact checked his five key assertions.
ASSERTION 1: Employers use credit scores when making hiring decisions.
Oliver opened the monologue referencing the three-digit credit FICO score assigned to consumers based upon their credit history. He transitioned into a discussion of the use of credit reports (not scores) in employment but in an admittedly funny joke about using credit reports to hire someone to work at a fireworks stand, he says “The only three digits that [employers] need to see are the ones on that person’s two hands.”
TECHNICALLY FALSE: While about half of employers do use credit reports to screen applicants for some positions, the credit bureaus will not sell credit reports containing FICO scores for employment purposes. The FICO score is designed to measure the likelihood that a person will pay his or her debts and is not intended to measure suitability for employment.
The punchline is funny but could be taken to suggest that the credit score could have influence on the hiring decision, particularly since Oliver never indicated that scores aren’t available to employers.
BUT GENERALLY TRUE: However, Oliver’s broader point that credit reports are sometimes used to evaluate individuals for employment in positions where their credit history is likely not predictive of job performance is valid.
ASSERTION 2: There is no statistical correlation between someone’s credit history and their job performance or likelihood to commit fraud.
TRUE: This was a pretty simple one because he used a video of a Trans Union representative’s testimony before an Oregon legislative committee.
In fact, Oliver might have gone further to underline this point.
In a study published in 2012 in The Psychologist-Manager Journal, researchers determined that there was no correlation. The “personnel records of 178 employees spanning six company locations and holding jobs falling within a ‘financial services and collections’ job category were included of a large financial services organization.”
The study’s conclusion stated “our data indicate there is no benefit from using credit history to predict employee performance or turnover.”
There are many reasons an individual may have negative credit information. As Oliver points out, about half of overdue debt on credit reports is medical debt. Beyond that, many households depend on two incomes. When one partner loses employment, decisions have to be made concerning which financial commitments, many of which were made in more financially rosier times, will be met.
Which raises the issue for employers trying to understand the relevance of an individual’s credit report to their fitness for a particular position: Dare they discuss it with the applicant?
Do you really want to discuss the applicant’s health or that of their family members? Not unless you want to risk running afoul of the Americans with Disabilities Act, the Pregnancy Protection Act, or Title VII of the Civil Rights Act.
Attempting to understand the financial effects of an unemployed family member or a divorce is equally treacherous for employers.
For all of these reasons, Imperative recommends that employers only use credit reports for individuals making financial decisions on behalf of the company or clients. And even in those cases, employers should have the assistance of someone accustomed to reviewing and interpreting such data (Imperative clients: call us!) and be willing to have frank conversations about the information before taking an adverse action based on the information.
ASSERTION 3: One in twenty credit reports has significant errors that could cause them to pay more for a car loan or a mortgage.
TRUE: A 2013 report from the Federal Trade Commission found:
When focusing on changes in score that could impact a consumer’s credit risk classification, the study found that 5% of consumers had errors on their credit report that may be affecting the likelihood of receiving credit or the terms of credit received.
This is why the Fair Credit Reporting Act’s (FCRA) requirement that employers provide applicants and employees with a copy of their report prior to taking an adverse action are important for employers and individuals. No one benefits when the information upon which a hiring decision is being made is erroneous.
(Oliver’s analogy for this level of inaccuracy is probably NSFW but is pretty humorous.)
ASSERTION 4: Some background screening companies appear to operate honorably.
TRUE: And I wish he’d spent a little more time on this point. There are some of us good guys left in the screening business.
Okay, time for full disclosure.
One of Oliver’s researchers contacted me several weeks ago about this piece. I spent the better part of an hour on the phone with her, explaining where criminal record information comes from and the problems caused by companies who sell criminal record database information directly to employers.
My one request of her was that there be some acknowledgement that there are responsible background screening companies out here. I pointed her to ConcernedCRAs.com, a group co-founded by Imperative and two other background screening companies focused on accuracy and consumer protection.
Concerned CRAs-participating companies agree to verify criminal record information before reporting it to employers and also pledge not to send consumers’ information off-shore for processing.
Concerned CRAs participation should be any employers minimum requirement for the background screening company they choose to work with.
ASSERTION 5: Some of the largest criminal background check companies have significant accuracy problems.
TRUE: Oliver referenced the $13 million settlement agreement that General Information Services (GIS) and its affiliate, e-backgroundchecks.com entered into last year.
In that matter, the Consumer Financial Protection Bureau found that the companies “violated the Fair Credit Reporting Act by, among other things, failing to employ reasonable procedures to assure the maximum possible accuracy of the information contained in reports provided to consumers’ potential employers.”
GIS is one of the largest background screening companies in the world and is accredited by the National Association of Professional Background Screeners (NAPBS), the trade association for background screening companies.
Disclosure: Imperative is a member of NAPBS and I was a chair of the committee that wrote the original accreditation standard, which was later edited by the NAPBS board. Those edits removed the clause in the standard that would have significantly increased the data accuracy standards for accredited companies. Following the airing of the John Oliver segment, NAPBS sent an email to all members advising they not respond to the segment.
Interestingly, e-backgroundchecks.com points to a generic landing page. A check with the Texas Secretary of State showed that e-backgroundchecks.com, Inc. uses the assumed name of backgroundchecks.com, which does lead to an actual background screening company that settled a class-action lawsuit over the accuracy of their reports for $18 million.
Unfortunately, these are but two of the many actions brought against background screening companies claiming inaccuracies in the information provided to employers.
Typically, these lawsuits arise when the background screening companies are relying on instant “nationwide” or “national” criminal records databases. These databases routinely connect records to the wrong people and provide out-of-date information.
Often, the inaccuracies in the reports also lead to class action lawsuits against the employers relying upon them. These regularly settle in the millions of dollars.
The Last Week Tonight with John Oliver segment on credit reports was certainly more accurate than the information offered by many screening companies who sell instant criminal records databases to employers.
* Yes, I ate alphabet soup for lunch. Back to top