Absence of conflict of interest.
Citation
Highlights
- The study's objective was to examine the impact of bans on the use of applicant credit checks by employers on employment.
- The study used a differences-in-differences approach to examine how credit check bans impacted employment in areas with similar average credit scores. The authors used administrative data sources to conduct statistical models and compare differences in outcomes between the groups.
- The study found that bans on the use of credit checks by employers during hiring processes were significantly associated with gains in employment in areas with low average credit scores.
- This study receives a moderate evidence rating. This means we are somewhat confident that the estimated effects are attributable to employer credit check bans, but other factors might also have contributed.
Intervention Examined
State Bans on Use of Credit Checks During Hiring
Features of the Intervention
Beginning with Washington state in 2007, several states and municipalities have implemented bans on the use of credit checks in the hiring process. In 2020, ten states and three localities had employer credit check bans. The bans outlawed the use of credit checks in the hiring process for most employers, apart from financial institutions that were exempt from the laws in nine of the ten state bans. The bans potentially impacted anyone of employment age who had a credit score or who could have possibly been required to provide a credit score during hiring without a ban.
Features of the Study
The study used a differences-in-differences approach to examine the impact of credit check bans on employment of people with similar credit scores across several states. The ten states with employer credit check bans were California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington. The study used Equifax Employer Credit Check data, Consumer Credit Panel data provided by the Federal Reserve Bank of New York, the U.S. Census Bureau’s LEHD Origin-Destination Employment Statistics (LODES) data, and data from the National Conference on State Legislatures to determine which areas have active credit check bans. The authors identified and classified census tracts with high and low credit scores using average credit score values per tract. With differences between census tracts controlled for, the authors used employment data to determine the level of employment post-ban for high and low credit score tracts. The authors only looked at impacts on individuals with both a credit score and a social security number. The treatment group is defined as those living in the ten states or municipalities that banned the use of credit checks during hiring. The comparison group is defined as those living in census tracts with comparable average credit scores in states that still allow the use of credit checks during hiring. Study authors used statistical models to compare differences between the treatment and comparison groups.
Findings
Employment
- The study found that employment in low average credit score areas significantly increased from 6.6% to 7.5% post-ban depending on how low credit was defined.
Causal Evidence Rating
The quality of causal evidence presented in this report is moderate because it was based on a well-implemented nonexperimental design. This means we are somewhat confident that the estimated effects are attributable to employer credit check bans, but other factors might also have contributed.