Disparate Impact? Race, Sex, and Credit Reports in Hiring

Abstract

Half of U.S. employers consider credit history when deciding whom to hire. The practice has become a contentious policy issue, with multiple jurisdictions limiting the use of credit reports in employment. Yet to date, there has been no test of how the introduction of credit history influences the way employers make decisions. Recent qualitative research finds that employers evaluate credit reports in contingent and person-specific ways, which opens the door to bias according to applicant characteristics, such as race and sex. To test for potential disparate impact in employment outcomes from the use of credit reports, we conduct a survey experiment with 1,050 hiring professionals. We find that including a bad credit report in an applicant’s file reduces respondents’ likelihood of hiring female (vs. male) applicants and reduces the recommended starting salary offered to black (vs. white) applicants. We discuss the implications of this study for research and public policy.

The Exception as the Rule: Negligent Hiring Liability, Structured Uncertainty, and the Rise of Criminal Background Checks in the United States

“…Elsewhere in the article, the author quotes a commercial vendor to compare the low fee for a criminal record check to the potential for costly jury awards: 37. As of 2016, eleven states, along with New York City and Chicago, had enacted such restrictions, citing the disparate racial impact of reliance on credit reports as well as the perception that poor credit history is not a meaningful predictor of job performance (O'Brien and Kiviat 2018).…”

Anti‐black currents in consumer affairs: An introduction to the special issue

“…Algorithms assign scores of risk that are meant to be race‐neutral, but how the users of those scores interpret the meanings of it can depend on race. O'Brien and Kiviat (2018) ran an experiment with over a 1000 hiring managers to test whether having a bad credit score would lower the likelihood of being called for a job interview. They also tested whether it would have an effect on what the managers would determine to be the suggested starting salary.…”

Law, governance, and finance: introduction to the Theory and Society special issue

“…Access to consumer credit in the United States depends on a person's individual FICO score and on credit information supplied by three major rating agencies (TransUnion, Experian, and Equifax). Now, however, such scores are used by employers, landlords, insurance companies, and others (Kiviat 2019;O'Brien and Kiviat 2018;Rona-Tas 2017), and they are being incorporated into various "big data" strategies (Hurley and Adebayo 2016). The legal status of credit score information was contested during the nineteenth-century, then settled, and following the Global Financial Crisis of 2008 has become an issue again (Gaillard and Waibel 2018).…”