The role of Credit Checks in employment vetting – a quick guide
Know Your Candidate (KYC) has produced this simple guide to help organisations understand where Credit Checks (Financial Checks) fit within the vetting process and answer some commonly asked questions.
Definition of credit check
You may have noticed that on the KYC website we refer to credit checks as financial checks. We do this to distinguish the type of financial check that can be carried out for employment vetting purposes and that which is carried out by lenders when someone applies for some form of credit as they are not the same. For employment vetting purposes, the vast majority of UK employers can only access publicly available financial information and not credit information such as the size of outstanding credit balances or payment performance for example. This is because the financial institutions that supply credit data do so on the basis of reciprocity i.e. you can only see credit data if your organisation supplies some data too. The only exception to the reciprocity rules are under sections 29 and 35 of the Data Protection Act relating to the prevention and detection of fraud or crime typically used by law enforcement agencies. However, employment vetting is not a permitted purpose under these clauses; therefore, the vast majority of UK employers can only access publicly available data for vetting purposes hence our name of Financial Check.
What data can you see for employment vetting purposes?
Unless your organisation is a financial institution supplying credit information to a credit reference agency you will be able to see the following types of data relating to financial matters:
1. Court Judgements
2. Voluntary Arrangements
3. Bankruptcy Orders
4. Notice of Correction
These are explained in more detail later in this guide.
What does this information tell me and how should I use it in an employment scenario?
KYC advises it customers that all employment vetting checks should incorporate a Financial Check as we believe that the way an individual conducts their relationships with their creditors can provide valuable information about their character and integrity.
The most common type of record found on a financial check is a County Court Judgement (CCJ) or Scottish Decree of which there were 4,975,073 registered in January 2009. Individuals can have a judgement registered against them for a variety of innocent reasons such as a dispute or a misunderstanding with a creditor, loss of employment or relationship / family breakdown However, there are some people who take out credit agreements or order goods with no intention of paying. It is these individuals that could pose a risk to employers, not just from a financial standpoint but also with regards to reliability and trustworthiness. If these individuals don’t honour their debts are they really going to work hard to serve your business and your customers? Probably not. So how do you identify these individuals?
Firstly, KYC advocates that the results from any vetting checks should always be combined with data and opinions collected throughout the whole selection process such as interviews, tests, roll plays etc. Specifically in relation to the negative results of a financial check we would investigate the following:
- Is there a notice of correction? If a situation can be explained most people who care about their reputation will have entered one to explain why negative data exists.
- Are any of the County Court Judgements paid or has the individual stuck to the terms of their IVA – if so this should be treated positively.
- Can the candidate display any evidence to show they have taken positive steps to get out of the situation they are in, such as letters to their creditors or setting up informal arrangements to pay back their debt?
- What is the frequency of court data – a few instances clustered together over several months could indicate a certain event triggered the debts such as becoming unemployed. Several CCJ’s over several years, without any truly mitigating circumstances would suggest a trend of non-payment and probably a candidate to avoid.
Certainly the scale of issue warrants making a financial check. In January 2009 there were nearly 5 million CCJ’s and nearly 600,000 bankruptcy records with the numbers only likely to continue to rise into the recession.
Court Judgements (CCJs and Scottish Decrees)
Court Judgements are requested by organisations (creditors) that are owed money by an individual (debtors) and they have typically failed to collect the money owed by other means such as an informal arrangement to pay back a lower amount per week or using a debt collection agency. It costs creditors money to register a judgement so most will try hard to resolve the situation with their debtors before it reaches that stage.
Once a judgement is requested the court will issue a date for a hearing and a claim form to the individual showing how much the creditor claims they are owed and the details of the claim. The debtor has 16 days in which to respond. They can make an offer to repay the debt at that stage. If no offer is made or the debtor disputes the claim there will be a simple court hearing in private where if the court decides against the debtor an order will be issued called a County Court Judgement (CCJ)
Unless the full amount is paid within 1 month, the CCJ will be recorded on the Register of County Court Judgements for 6 years, even if the CCJ is settled within the 6 year period. Any settled judgements will be shown as such.
Under Scottish Law claims are dealt with by the Sheriff Court via a slightly different procedure which results in a Scottish Decree being recorded if the court finds against the debtor.
Individual Voluntary Arrangements (IVAs)
An IVA is a formal and legally binding version of an informal agreement that debtors can make with their creditors to make some of their monthly payments to repay outstanding balances. To set an IVA up an Insolvency Practitioner (IP) must be involved who makes a proposal to the individual’s creditors regarding how much they can pay. How long an IVA lasts depends on the proposal made but most generally last 5 years. The IVA will end when all the sums set out in the proposal are paid. If the terms of the IVA cannot be adhered to the IP will give notice to all creditors involved that the arrangement has failed. Some creditors may then choose to make a bankruptcy order against the individual.
Bankruptcy orders
Bankruptcy is one way an individual has of dealing with debts they cannot pay, most often used as a last resort. A court makes a bankruptcy order only after a petition has been presented by the individual (debtor petition) or by one or more creditors who are owed at least £750 by the debtor and that amount is unsecured (creditors petition). Although rules regarding bankruptcy have changed and some sections of the media make out that it’s an easy way to become free of debts there are many significant consequences to being made bankrupt, some examples are:
- The debtor no longer controls their assets, they are controlled by a trustee
- The debtors house may be sold
- The trustee is entitled to surrender life assurance policies and collect the proceeds
- Work related registrations, licences and permissions could be affected
- The trustee may apply to the court for an Income Payments Order which requires the debtor to make contributions to bankruptcy debts from their income
If the debtor was made bankrupt on or after 1st April 2004 they will be automatically discharged from the bankruptcy after 12 months if the debts, fees and expenses from the bankruptcy have been paid in full. If not the trustee or the official receiver can apply to the court for the discharge to be postponed. The data for each bankruptcy is retained on file and will show on a search for 6 years after it was entered.
Notice of Correction
Individuals have a statutory right to include a personal statement called a Notice of Correction on their record held by Credit Reference Agencies. This is usually submitted by the individual where they feel that the information held on their file is not accurate and may prejudice their ability to obtain credit. The Credit Reference agencies are legally obliged to display the Notice of Correction and cannot delete or modify the information. Each Notice of Correction includes the date it was submitted and the name of the individual who registered it.
Do any of the searches Know Your Candidate make leave a footprint on my candidates credit file and impact their ability to get credit?
Yes we have to leave a footprint by law to record that a search has been made, however the footprint that is left is one that can only be seen by your candidate and will not be seen by any other organisation. Searches with Know Your Candidate will therefore NOT adversely affect your candidate’s ability to gain access to credit.
My candidate claims that the financial information held on them by the credit reference agencies is not correct – what can they do to change it?
Your candidate can contact the 3 Credit Reference Agencies in the UK by writing to them:
Call Credit: Customer Care, Call Credit Check, PO Box 734, Leeds, LS1 9GX
Equifax: Equifax Credit File Advice Centre, PO Box 1140, Bradford, BD1 5US
Experian: Consumer Help Service, Experian Ltd, PO Box 8000, Nottingham, NG80 7WF
If your candidate believes that a judgement has been incorrectly recorded they can write to the county court with the details and case number. If the judgement has been recorded incorrectly they will change the details and inform the credit reference agencies within 4 weeks.
Driving licence checks – a speedier service from KYC
With the Royal Mail strikes likely to have a significant impact on the turnaround time of driving licence checks, Know Your Candidate is pleased to announce that we will now make all requests to the DVLA by fax and receive the results of these checks by telephone, reducing the turnaround time to 2 or 3 working days.
The present standard process operated by the DVLA is to return the results of the checks by 1st class post, normally within 10 working days. However, the volume of mail in the run up to Christmas and the threat of strikes highly likely to materialise will impact the turnaround times.
The DVLA operate a strict window in which account holders can telephone for the results of checks between 9am and 12pm, therefore Know Your Candidate will operate the following process:
Any mandates received by midday on a particular working day will be faxed to the DVLA on the same day and the results will be collected on the following working day e.g. mandates submitted Monday and the phone call made on Tuesday.
Mandates received after midday day will be sent on the following working day and the phone call to get the results made the day after that e.g. mandate received 1pm Monday will be faxed to the DVLA on Tuesday and the phone call to receive the results will be made on Wednesday morning.
Employment references – a waste of time for retailers?
Most economists seem to think that the economy will recover very slowly in the UK. Whilst we may technically exit recession when the Q3 GDP figures are released, fundamentally nothing will have changed – unemployment will still be high and is only likely to continue to rise as the public sector cuts spending in an attempt to make in-roads into a record budget deficit. The pound has recently weakened and looks vulnerable to further falls, while commodity prices are slowly rising as other countries return to growth.
What does the economics tutorial have to do with retail?
While these economic factors may seem to be more relevant to bankers and finance ministers they could produce the ‘perfect storm’ for UK retailers:
- Consumers reign in spending even further due to rising unemployment and talk of public sector cuts.
- More expensive imports as a result of a weak pound and rising commodity prices.
In essence downward pressure on revenue, increasing pressure on costs and increasing competition as the same number of retailers chase fewer pounds being spent. To remain competitive in this climate, retailers will need to investigate every area of their business and make changes – even to procedures that are as old as the hills.
Why is this relevant to HR and recruitment?
Even small retailers employ several hundred staff and many employ 1000 + coupled with high rates of labour turnover in the industry (average of 25% over the last 3 years – source CIPD recruitment surveys, 2007, 2008 & 2009) means that recruitment is a major spend.
One of the processes associated with recruitment is the collection of 2 references on each employee. This is a process that is as old as the hills which no-one seems to question. I believe that all industries can benefit from re-evaluating their approach to referencing with the retail sector being one of the industries that could gain the most from this exercise due to the factors already outlined.
Does this process sound familiar?
Have you ever stopped to analyse the cost benefit gained from references? If you do you will be surprised at just how little value is gained compared to the time and effort (=money) employed to complete the process. From my experience a typical attempt to gather 2 references goes something like this:
1. The details of 2 referees are collected during the application process.
2. At the relevant stage in the recruitment process 2 letters are printed and posted to the referees.
3. One reference may be returned inside 5 or 10 working days without any chasing.
4. You end up chasing the second reference or maybe both and find out that it hasn’t been received or the candidate hasn’t given you the correct address (often the case when a candidate has worked for a large employer and given the name and address of a local line manager rather than the HR shared services centre where it should actually be addressed to).
5. You re-send the reference request to the new address.
6. You maybe chase the reference(s) for a 2nd time.
7. After 4-6 weeks you will have received on average 70% of references you originally requested – that’s 1.4 references per candidate!
8. The references state the dates of employment and the role in which your candidate was employed. The paper copies are stored on file or a member of staff keys the details into a Recruitment or HR system.
A conservative estimate of 2 hours of work to complete this process for each candidate would result in costs around of £35. The breakdown of this estimate is as follows:
2 hours of an HR administrators time at £8 per hour = £16,
Employment overheads (employers NI, occupancy cost, benefits etc) at a multiple of 2 = £32
Plus 3 letters at £1 each = £3
Total = £35.
At management level and for head office roles the time and effort can be justified on the basis that the cost of references are very low compared to the overall cost of recruitment and verifying someone has done a similar role prior to joining your organisation is useful information. The reverse is true for shop floor workers or those at lower pay grades. Given that the bulk of employees of any retail business are employed on the shop floor then there is the potential for large time and cost savings to be made.
So what’s the alternative to referencing for shop floor employees?
The most radical approach would be to choose to do away with references and make no checks at all. However, this leaves you with little cover should anything go wrong and would be a difficult position to explain to auditors and insurers and potentially incur negative PR. Also making no checks leaves you vulnerable to time wasters or undesirable candidates – with more likely to apply if there are no checks adding time and costs to the initial sift process.
A better approach would be to replace references with data checks that are appropriate for each role. Data checks such as financial / credit checks, identity and address verification, criminal records and qualifications are gathered from pre-compiled data bases as opposed to references which have to be requested on a case by case basis from millions of employers across the UK. Data checks offer several advantages over references:
Extremely fast turnaround times – most data checks are completed in 1-2 days meaning they are aligned with short on-boarding times prevalent in the retail industry
Cost effective – £9.50 for a financial check / £16.50 for a qualifications check compares favourably to £35 for 1.4 references!
100% completion – compares favourably with completion rates of 70% for references
More useful information – checking facts enables you to assess a candidate’s honesty and integrity more accurately than the information provided on references – for example if you are hiring a recent college leaver, doesn’t it make more sense to verify the qualification they claim than the dates they worked behind the bar at the student union?
More robust than checking paper certificates or self-certification – many employers check identity, right to drive and qualifications by taking copies of documents and certificates and request that candidates self-certify they have not got a criminal record. Checking these details at source means that you get accurate data you can rely on to make business decisions not false information.
You can then build a risk based approach by applying the most relevant checks to each role, for example:
Shop floor worker with no qualifications – identity and financial check
Shop floor worker with qualifications – identity and qualifications check
Delivery driver – identity and driving licence check
Store Management / Cashier department staff / In-house Security – identity and extended financial check, basic criminal records check and qualifications checks where appropriate plus employment referencing.
I would still advise that you continue to request the details of 2 referees from all your candidates should you need to take them up in circumstances when you’re not sure about a certain candidate or you are looking for further evidence to support the views gained from the interview and the results from the data checks – BUT ONLY take the references up in these situations. This gives the perception to candidates that the vetting process is robust and means that you already have the referees contact details should you need them. In the majority of cases you won’t however and that’s why you will make significant savings.
To source data checks for your candidates via a one-stop service delivered entirely over the Internet with low prices visit www.knowyourcandidate.co.uk
