The federal government sued Kaplan Higher Education, one of the nation’s largest providers of for-profit education, for allegedly discriminating against African-Americans by using credit scores to weed out job applicants.
The lawsuit could have broad implications for employers and job applicants. About 60% of American companies check credit scores for at least some job applicants, according to a recent study by the Society for Human Resource Management. More companies are performing such checks now that high unemployment rates from the recession leave more people applying for fewer jobs.
The practice is discriminatory, the EEOC alleges, because African-Americans have disproportionately lower credit scores than whites, the EEOC alleges.
“Employers need to be mindful that any hiring practice be job-related and not screen out groups of people, even if it does so unintentionally,” the commission said in a press release.
Kaplan denies the allegations.
“We are an equal opportunity employer, and we are proud of the diversity of our workforce,” Michele Pore, a company spokeswoman, said in a written response.
The lawsuit will hinge on two questions, says Mathew W. Finkin, director of the comparative labor and employment law & policy program at the University of Illinois. First, the EEOC must prove that the policy of checking applicants’ credit scores has a “disparate impact” African-Americans.
That’s largely a question of demography, Finkin says: Do the statistics support the fact that blacks have markedly lower credit scores than whites? According to a Federal Reserve report, the average credit score for an African-American consumer is less than half the average score of a white consumer.
“There is no question that African American and Latino applicants fare worse than white applicants when credit histories are considered for job applications,” Chi Chi Wu, a lawyer for the National Consumer Law Center, said in testimony before the EEOC in October.
The same test has been used before. Because African-Americans are more likely to be arrested than whites, the EEOC has shown that screening job applicants by arrest records has a disparate impact on blacks.
“The EEOC has taken a well-established legal theory from arrest and conviction reports and applied it to credit reports,” says Dr. Finkin. “That’s simply an extension of existing law.”
If the government clears that hurdle, next it falls on Kaplan to prove that, while its practice may be discriminatory, it has legitimate business reasons to do it anyway. Employers have argued that a credit check is a legitimate part of determining an applicant’s qualifications, especially for workers involved in finances and corporate leadership.
“Kaplan Higher Education conducts background checks on all prospective employees,” Pore said in her statement. “For employees whose responsibilities include financial matters, such as those who advise students on financial aid, background checks also include job-related credit histories.”
In addition to potentially far-reaching impacts of the lawsuit for the nation’s 15 million unemployed people, the lawsuit could cause problems for the Washington Post, which bought Kaplan in 1984 and oversaw its transformation in the last decade from a test-prep company into a major provider of for-profit higher education. Kaplan has been an important source of profit for the company as the newspaper has faltered in recent years, according to reporting by the Post.
This is only the latest in a series of legal troubles for Kaplan. Earlier this year the company was sued by a number of parties, including Florida Attorney General Bill McCollum, for allegedly deceiving prospective students into taking out large federal loans to enroll.