Dangerous Debt
The number of American troops who have had their security clearances revoked because they are too deeply in debt has increased nine-fold in the past five years. The US government, desperate for soldiers to send into fighting, has decided that mountains of plain old consumer debt present enough danger that these people cannot be sent to fight.
The military says it has two fears: indebted soldiers selling secrets to the enemy or soldiers, although loyal, who don’t “have their heads in the game.” Why aren’t other American employers worried about the same issue? People deep in debt may do bad things to try to save their families or they just may not be able to concentrate on their jobs if they are worried sick about foreclosures or debt collection calls.
Andy Stern and the Warren Report bloggers have been laying the foundation for a realignment of interests in which employers recognize that they need a national health care system as much as their employees do. I want to go one step further: Employers also have a very real stake in the rising level of consumer debt.
Workers who are deeply stressed financially may not be as effective as their more secure counterparts. They may have more accidents, or they may be more susceptible to theft or bribery. The military certainly thinks so. Are other employers worried?
A small number of subprime lenders has raked in billions of dollars in profits in the past few years. At Warren Reports, we talk about how those profits have come at the expense of hard-working families. But the military reminds us that employers throughout the economy may be paying the price as well.
When Congress next thinks about regulating lending practices, perhaps consumer advocates should be joined by the Chamber of Commerce.
Unfortunately, (some) businesses might see advantages to an indebted employee. They might be more compliant, they might be less likely to quit for family reasons, etc. Of course, they might also leave for higher paying jobs if the economy is good, steal (as you said), etc.
The military (and intelligence/defense agencies) clearly have an interest in people with valuable knowledge not being subject to coercion (and their interest in their employees' consumer debt is not something new). I just wonder how well that translates to businesses, as the unscrupulous ones like exploitable employees.
October 22, 2006 7:41 PM | Reply | Permalink
"Employers also have a very real stake in the rising level of consumer debt."
This is already working against job seekers. Many companies do credit checks on prospective employees, and not just those who may have access to funds. The net effect is that a person may not receive the job offer, and has no recourse, as this is not considered a form of discrimination.
October 23, 2006 1:12 PM | Reply | Permalink
As a former business owner myself, I can tell you that my peers were encouraging employees, particularly sales people, to spend more than they make. Why? to motivate them to sell more, or do whatever is necessary to make more money. These employees are grateful for overtime, and suseptible to carrot motivation. Money is a big motivator for most people. It is immoral, in my opinion, and simply takes unfair advantage of people.
Jim Anderson
The Truth About Credit
October 23, 2006 4:10 PM | Reply | Permalink
Credit checks or any background checking must be relevant to the job. You cannot use any criteria that is not job related, to make a hiring decision. That is a basic principle of employment law. I'm not an attorney, but I have hired hundreds of people in my time as a business owner. Employers get away with it because nobody complains. Even if the job candidate gave consent for the credit check, it can still be challenged if you think you've been turned down because of your credit rating, and there is no legally valid reason for using it as employment criteria.
To add insult to injury, the damages are typically not enough for an employment attorney to take on your case on contingency, so it is very difficult to challenge. You'd have to have other claims that go with it. One would have to retain an attorney on an hourly fee.
For those in California, a very good book for evaluating your claims is "Employee Rights in California" by Don D. Sessions You might be surprised how many different claims you can put together in a complaint. Employers are often carelessly violating laws in ignorance.
Jim Anderson
The Truth About Credit
October 23, 2006 4:23 PM | Reply | Permalink
When I went into the Army, I was advised by an officer in the recruiting office, that that the payoff on my student loans was not taxable income. I joined after college to get my $80,000 of student loans paid off in three years.
I joined with an MOS in Military Intellegence. I had to get a SCI level clearance, one of the highest level clearances given.
After joining, I discovered that the loan payoff was taxable income and that I could not pay the income taxes with my paycheck. So I received nothing after taxes. What is worse, I was already using money from my checks to live on, because they didn't account for it in my payroll deductions. The Army attorney I saw was appalled, and recommended I file bankruptcy. But I don't think bankruptcy stops the IRS, just puts them off until I leave the Army. I had very little other debt.
In basic training I met a guy who was given the choice of jail or 3 years in the army. He was in a specialty that also required an SCI level clearance. It seemed to me he was a high risk of taking money for secrets, especially in the specific job he had.
Why did they give me an SCI level clearance if I was clearly headed for financial trouble? Why didn't they take away my clearance immediately upon finding out? Why did they let a convicted felon have access to SCI?
Is it any wonder we have problems with national security?
Jim Anderson
The Truth About Credit
October 23, 2006 4:33 PM | Reply | Permalink
I'm not sure how many employers actually do check credit reports, although many say they do. In the last four years I've had four employment background checks done (one even with fingerprints taken). For each of them I had to sign a permissions document for them to check my credit, but none of them ever did, at least not according to my credit reports at all three agencies. Maybe they do this to scare off problem credit risks, but don't actually want to spend the money to check except for very sensitive jobs.
October 23, 2006 7:10 PM | Reply | Permalink
You cannot use any criteria that is not job related, to make a hiring decision. Jim Anderson
Any law prohibit the practice of using credit histories and ratings in making hiring decisions? If so, providing a link to it would be a nice gesture.
October 24, 2006 12:32 AM | Reply | Permalink
Yeah. "Well, we'd really like you to come in on the weekend and give up your evenings as well for us." If you're in a precarious situation you're going to give up your time for their benefit.
October 24, 2006 6:26 AM | Reply | Permalink
Unfortunately, it isn't as simple as giving you a link that cites the law prohibiting it. There are also privacy laws in play. This is a very complex area of law. However, I found this site which may help. Remember, however, that it must be job related. It has been since 2001 since I had my business, and after 9/11 our privacy rights have been decimated. But, the rule in hiring given to me by attorneys and HR professionals, is that you cannot use any information to screen out a candidate for a job if the information is not related to a legitimate job requirement.
It is also important to remember that information gathered in background checks are not 100% reliable. Every single credit report has at least one error. Most credit reports have numerous errors. If this information is used to eliminate a candidate from consideration for a position, The candidate must be given an opportunity to respond to the adverse report.
This question was asked on Lexis/Nexus website:
Q. Can an employer run a credit check on a job applicant?-- Anonymous
A. Can an employer run a credit check on a job applicant? Sometimes, yes. Most of the time, no.
If an employer can demonstrate a legitimate business necessity, such as handling large sums of money in a trustworthy position, then it may be permissible to run a credit check on a job applicant. Absent such circumstances, though, smart employers recognize that it is not a good hiring practice to use credit reports in screening job applicants.
Why? The Fair Credit Reporting Act imposes a number of restrictions upon employers who wish to do a credit check. If an employer uses a credit report in a hiring decision, the employer must give the applicant written notice that his or her report has been requested. The Fair Credit Reporting Act also requires that the employer must reveal the nature and scope of the investigation if the applicant asks. And, if an applicant is denied employment based upon a credit report, or an employee is demoted, terminated or not promoted or transferred, the employer must notify the person in writing of the reason(s).
Normally, unless an employer can show a legitimate business necessity, investigating the financial status of a job applicant may also be an unlawful employment practice under Title VII. The federal Equal Employment Opportunity Commission has taken the position that a refusal to hire job applicants because of a bad credit report is a violation of Title VII because it tends to disproportionately prevent minority employees from being hired. The EEOC prohibits employers from taking actions involving hiring decisions which have a disproportionate impact on minority applicants, absent a demonstration of business necessity.
The subject of personal finances is just that, personal. And unless an employer can demonstrate a legitimate business reason for requesting a credit report, it's best left alone.
For specific legal advice applicable to the facts of your particular situation, you should seek the services of a qualified attorney familiar with the laws of your jurisdiction.
-- Gloria Rowland Homolak
Jim Anderson
The Truth About Credit
October 24, 2006 8:16 AM | Reply | Permalink
When wage earners of any stripe are facing difficult choices their judgement could be impaired. Wage earners, especially men, will take extraordinary risks to protect and provide for their families.
If we have a system (we do) that elevates the risk for people to make ends meet then the persons responsible for that system have to recognize that people who are caught up in this are merely responding in a predictable way. The one sided financial relationships that have been created by collusion between all manner of financial institutions and government has had a broad impact upon wage earners and has demonstrably harmed this countrys middle class. What the principals have failed to appreciate all along is the working class men and women of this country represent the goose that lays the golden eggs. Basically, the principals have shot the hell out of that goose without a care for the idea it isn't an unlimited resource. In the simplest of terms, desperate people, seeking only the fundamentals, will do whatever is necessay to provide for their families. As the scheme rewards more and more the top end, those below are forced to circumvent the system just to keep on par or even to get by.
There is no way this should be an unexpected outcome given the wealth transference that has been on cruise control for so long now. And with no apparent way to disengage, it is just a matter of time before there is going to be one hell of a collision.
thepeoplechoose
October 26, 2006 4:07 AM | Reply | Permalink
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November 1, 2006 10:03 PM | Reply | Permalink
You want to talk about debt. I was in the mortgage business for 23 years, a regulator for eight of those years. When interest deductions for installment loans were removed from the tax code, the consumer moved this debt against the equity in their homes. Five year auto notes were stretched over 30 years and the consumer just continued to refi over and over again, prompted by aggressive marketing campaigns by major banking/mortgage companies and aggressive sales tactics and personnel. The equity in many of their homes is now gone. It was if the consumer was deliberately set up to fail by both the public policy and the banking/mortgage banking industries. The fees for refinancing a mortgage loan can be exorbitant and the average consumer is severely exploited by this industry.
For example, a consumer who wants $20,000 cash out for whatever reason may be
offered an option to refi the existing loan balance, plus the $20,000 cash out, plus the fees to process the loan, instead of being offered a 2nd trust. This is because the fees for a 2nd trust do not amount to anything more than $500.00, the commission is mostly “unit based”. The sky is the limit for fees on a 1st trust, and are based on the balance of the loan. Many of the fees are hidden, so the consumer does not know what they are really paying for in “hard costs”. This is called “stripping”, it is a common practice, everyone in the industry knows about it, and nothing is being done to stop the practice. In the past several years some states have enacted cost/benefit laws. In the past year I know of only one major mortgage company that has added cost/benefit guidelines to protect the consumer in those states that do not have laws on the books. In any event there are still ways to get around these laws and guidelines and it is still a very common practice.
Now the equity is gone, and home prices are falling Nationwide. Add to this mess, rampant appraisal fraud by a self regulated profession, highly volatile, risky loan products and you have a huge problem coming down the pike.
November 1, 2006 10:07 PM | Reply | Permalink