"Drum and the Slacktivist both call for making this illegal, and at first blush I’m inclined to agree. But at the same time I try to adhere to the principle I outlined here and resist the urge to call for regulating the business practices of private firms when the issue isn’t pollution or some other case where the externalities are clear. After all, it seems like either this credit check business is a sound business practice (in which case allowing it is making the economy more efficient and ultimately building a more prosperous tomorrow) or else it’s an unsound business practice (in which case competition should drive it out). But this really does seem fishy and I’m curious to read more on the subject."It's hard to deny that there is some legitimate business value to checking credit scores. On average a lower credit score does indicate a weaker sense of financial responsibility, although there is certainly plenty of unrelated individual variation as well. (Isn't this true of any metric for evaluating employees?) Still, Drum and the Slacktivist think that use of credit scores in employment is creating a "Catch-22" whereby unemployed workers have bad credit—because they're unemployed—and thus can't get a job, which only worsens their credit and job prospects even further.
Of course, you'd imagine businesses would realize that weak credit scores from an unemployed applicant don't carry the same meaning as weak credit scores from an applicant with a steady work history, and evaluate them accordingly. In this light, Drum's point is really just "I think that employers are so stupid that they won't realize credit partially reflects employment history." Maybe that's true, and if after a careful review of the evidence we find that employers are incapable of using credit scores in a remotely rational manner, then we can consider regulatory action.
In the meantime, however, it's deeply destructive to run around making wild assumptions about businesses' incompetence. As Yglesias says, that's the kind of liberal I'm not.