DCI Consulting Blog

District Court Rules in Favor of Employer in Credit Check Case

Written by Former Contributors | Mar 21, 2013 12:08:00 AM

The case is EEOC v. Kaplan Higher Learning decided on January 28 by Judge Patricia A. Gaughan of the District Court for the Northern District of Ohio, Eastern Division (2013 U.S. Dist. LEXIS 11722). The EEOC claimed that Kaplan’s use of credit reports adversely impacted Black applicants. The defense challenged the EEOC’s expert report showing there was adverse impact. Judge Gaughan ruled that the EEOC’s report was inadmissible under Daubert standards, and therefore, there was no evidence of adverse impact. As a result, Kaplan was awarded summary judgment.

Kaplan’s use of credit checks was limited to certain sensitive positions and was designed to determine if applicants were under “financial stress or burdens that might compromise their ethical obligations.” The credit histories of applicants given a conditional offer of hire were first reviewed by an outside credit agency, General Information Services (GIS), to determine the presence of one or more of 10 potential “flags.” If the flags existed, the credit history was then reviewed by Kaplan’s controller who could override the flags if other evidence suggested the flags were not an accurate picture of potential financial stress for a particular applicant.

EEOC argued that this credit history review had adverse impact against Black applicants and was not job related. Kaplan’s two experts argued that EEOC’s analyses had two serious flaws: (1) no control for important variables such as the job applied for, and (2) because race information was not available for the full set of applicants, EEOC’s use of “race raters” to determine race from applicants’ driver’s license photos was unreliable.

The key ingredient in Judge Gaughan’s rulings was that the proof of adverse impact, based entirely on the EEOC’s expert report, was not based on objective tallies of applicant race, but rather, subjective approximations based on agreement among raters on race classifications (e.g., African American, Caucasian, Hispanic, Asian, or other). Kaplan called the “race rater” technique “guesswork”, and offered reasons why it failed under Daubert standards, which require evidence that: (1) a technique or theory can be or has been tested; (2) whether it has been subject to peer review and publication; (3) the known or potential rate of error of the technique or theory; (4) the existence and maintenance of standards and controls; and (5) whether the technique or theory has been generally accepted in the scientific community. Kaplan’s attorneys challenged the EEOC’s expert report on each of these dimensions, and Judge Gaughan agreed, ruling:

Upon review, the Court finds that the expert reports and testimony provided by [EEOC’s expert] are inadmissible because plaintiff fails to present sufficient evidence that the use of "race raters" is reliable. Simply put, plaintiff offers no evidence sufficient to satisfy any of the Daubert factors.

by Art Gutman Ph.D., Professor, Florida Institute of Technology