Challenging Discriminatory Uses of Credit Histories in Hiring and Insurance Underwriting
By Amy Radon, Public Justice Goldberg Attorney
Juan Ochoa had been out of work for eight months when a staffing firm contacted him with a possible position as a data entry clerk. The firm pulled Mr. Ochoa's credit report as part of its application process; soon after, Mr. Ochoa learned that he was no longer a candidate for the position. There were "too many collections claims" against him, the staffing firm said.
For many years Patrick Ojo held a homeowner's insurance policy from Farmers Group. In 2004, Mr. Ojo learned that Farmers had increased the premium on his policy even though he hadn't made any claims. When he asked about the reason for the nine-percent increase, Farmers responded that it was due to "unfavorable credit information" obtained about Mr. Ojo through the company's own credit reporting system.
As Mr. Ochoa, who is Latino, and Mr. Ojo, who is African-American, discovered, credit information can affect much more than loan eligibility -- especially for people of color.
In recent years, researchers have looked at the correlation between credit scores and race, and the results are staggering: across the board, African-Americans and Latinos have significantly lower credit scores than whites. Credit-check policies by employers are therefore especially harmful to minority job applicants.
Nevertheless, employers and insurance companies are continually turning to credit information as a quick-and-dirty way to decide who gets a job or who can obtain homeowner's insurance. Many of the major property insurers -- including Allstate, Nationwide, Farmers, and Hartford Financial Services Group -- use credit information to set premiums (lower scores appear to correlate with higher premiums). And in the employment context, employers are now pulling credit reports as a routine part of the applicant vetting process.
Yet the link between a credit score and likely job performance or insurance needs is questionable at best; there does not appear to be any empirical evidence to support it. In fact, one study even suggested that employees with blemishes on their credit report may end up performing better on the job: it makes sense, after all, that a person facing financial pressures has a greater incentive to perform well to merit a salary increase or promotion.
It's also important to remember that a job applicant may have a low credit score for reasons entirely beyond his or her control -- such as disability, unemployment (as in Mr. Ochoa's case), medical expenses or identity theft.
Whatever the reason, though, Mr. Ochoa, Mr. Ojo and other victims of discrimination have the law on their side: Title VII of the Civil Rights Act and the Fair Housing Act. And they can fight back in court.
A plaintiff who files a lawsuit under Title VII of the Civil Rights Act need not prove that his or her prospective employer intentionally sought to discriminate on the basis of race; it is enough to show that the employer utilized an application process that adversely impacted members of a protected class. To date, only a handful of these lawsuits have been filed. (Because such efforts are in their infancy, it is difficult to predict whether these cases will prompt employers to abandon the use of credit information in hiring decisions.)
In the insurance context, meanwhile, minorities who are denied coverage or have seen an increase in premiums may be able to challenge the use of credit scoring to set those premiums under the Fair Housing Act. The Sixth, Seventh, and Ninth Circuits have already recognized that provisions of the FHA outlawing discrimination extend to the underwriting of homeowners' insurance. The most notable outcome thus far has been the successful settlement reached between a class of minority insurance customers and Allstate.
Problematically, though, victims of discrimination through credit information often don't know their rights and are unlikely to reach out for help. The lack of awareness about this type of discrimination is significant given the tight limitation periods for Title VII and FHA filings: Title VII mandates the filing of an administrative claim within 300 days as a prerequisite to filing a lawsuit, while an FHA action must be filed within two years.
Given these short time frames, it is essential that we start educating job seekers and consumers about their rights when it comes to credit scores. Workers' unions and grassroots fair housing organizations could be instrumental in this education and outreach effort.
Discrimination by way of reliance on credit scores is no more acceptable now than the more overt forms of discrimination that Title VII and the FHA were enacted to prevent decades ago. Although these cases will be far from easy to develop and litigate, this is a new and important battle in the fight against discrimination in this country.
About the Author:
Amy Radon is the Goldberg Attorney at Public Justice, where she practices in the firm's Access to Justice, civil rights, and consumer rights litigation areas. Prior to joining Public Justice, Amy worked for the Cambodian and South African governments designing programs that ensured fair distribution of land and water rights. She can be reached at aradon@publicjustice.net.