Delinquent Consumer Debt Leading Cause for Security Clearance Denials

People may have valid reasons for not being able to pay debt.  Indifference or refusal to show a good faith effort to establish a payment plan or resolve the issue is not one of them and can cost you a job – at least with the U.S. Department of Defense and its contractors.

A recent analysis by insideARM.com of cases before the DoD’s office that determines which Americans get access to classified information found that delinquent consumer debt is the leading cause for security clearance denials.  Of the 107 cases adjudicated by the Defense Office of Hearings and Appeals (DOHA) in July, 53 involved financial concerns.   Of those 53 cases, 36 were denied security clearance for the job.

The applicants appearing before the DOHA administrative judges are seeking jobs that would put them in contact with classified information, specifically at private companies contracted to do work for the DoD. The agency also conducts similar hearings for 20 other federal agencies and departments and settles claims for military personal and DoD civilian employees, as well.

Cases are brought to DOHA when an immediate decision cannot be reached on the status of an application for access to classified information, thus necessitating a hearing. DOHA has adjudicated some 950 cases in 2010.

Some of the security clearance denials by the DOHA seem obvious.  For example, people who have defaulted on federal student loans or are in debt to the Internal Revenue Service with no plan in place to pay back the loan or taxes were denied clearance.  Taxpayer dollars fund student loans and federal, state, and local government agencies and governments tend not to employ or retain workers who owe taxpayers. 

But failure to address private-sector consumer debt doesn’t sit well with the DOHA either. A 39-year-old employee of a federal contractor learned that fact when she was denied security clearance because evidence revealed a history of financial problems and about $32,000 in unpaid delinquent debts, despite being employed continuously since at least 1999.

The DOHA judge adjudicating the case noted, “She did not present any documentary evidence of a good-faith effort to repay or otherwise resolve her indebtedness. There is insufficient evidence to explain, extenuate, or mitigate the security concerns stemming from her history of financial problems.”

Consumer credit checks are becoming a routine part of the job screening process more often with private employers, too.

Robert Pickell, senior vice president of customer solutions for employment screening firm HireRight, Inc., said 32 percent of the respondents to its 2010 benchmarking survey indicated that they use check credits as part of their employment screening process.  In a 2010 report on employment background checks by the Society for Human Resources Management, at least 50 percent of the respondents who conduct credit checks said they look at credit records as far back as seven years.  And 64 percent of those SHRM respondents said if a credit check revealed a current outstanding judgment such as a lawsuit, it would affect their decision to withhold or withdraw the job offer.  Forty-nine percent said accounts in debt collection would affect their decision to withhold or withdraw the job offer.

Human resource experts said employers do credit checks to reduce or prevent theft, embezzlement or other criminal activity.  In the case of the U.S. government, officials want to be sure an employee with access to classified information won’t be likely to divulge that information for a quick pay day. But Pickell said credit checks are not relevant to all jobs.

“If you’re hiring someone in the accounting department, their credit background is job related.  But if you’re hiring someone to work on a production line it isn’t relevant to the job and an employer probably should not be looking at it,” Pickell said.

Many state lawmakers agree.  The use of credit history reports for employment is allowed in most states. But Hawaii, Washington, Oregon and Illinois, have passed legislation since 2007 restricting how credit history investigations are used for employment purchases. And 20 states, plus the District of Columbia, introduced similar legislations this year, said Heather Morton, a legislative analyst with the National Conference of State Legislatures.

Morton said state lawmakers are trying to balance employers’ needs to learn relevant information about a job applicant that may affect their business with consumers’ need to find employment and maintain financial privacy. But the issue is confusing and there are few resources for consumers that adequately address the negative impact of carrying large consumer debt burdens.

ACA International Spokesman Mark Schiffman told insideARM.com that the leading trade association for the accounts receivable management industry will step up its efforts this fall to make consumers more aware of its website, AskDoctorDebt.com. ACA is positioning the site as a tool to help consumers find answers to their questions about debt. While credit history may not factor into the application process for most job seekers, it may often play a role when seeking credit and buying or renting a home, Schiffman noted.

“We are going to be more activity publicizing (AskDoctorDebt.com) through (mainstream) media, trade media and through our members, encouraging them to use the website in their business and when talking with clients. Our goal is to encourage more folks to use it,” Schiffman said.

Even if consumers put forth a good faith effort to clear their debts, the repercussions can linger, with most debts staying on credit reports for seven years.

The DOHA also appears to have little sympathy for victims of circumstance who fail to act to clear their name or remove the debt. One applicant alleged that her boyfriend charged $93,000 in debt on her credit card without her knowledge. He later died, leaving her liable for the bill. Though her ongoing payments towards a student loan showed a good faith effort in meeting some obligations, she was denied clearance for the job.  The judge said she had income after expenses and she provided no evidence that she had established a payment plan or taken any concrete plan to resolve her debts.

But the DOHA has shown a tendency to clear applicants who have wiped out or restructured their debt through bankruptcy, provided the agency was satisfied that the applicant had since demonstrated better financial judgment.  However, a 35-year-old employee of a federal contractor who, along with his wife, played the real estate market and sought relief through Chapter 7 bankruptcy had not showed a improved pattern of credit usage.  The judge noted that the bankruptcy relief was granted in November 2009, but said the evidence showed the applicant has a history of financial problems and did not provide “full, frank and candid answers to questions about his financial record during the security process.”

“Given the recency of the bankruptcy case and the surrounding circumstances, it is too soon to tell if applicant’s financial problems were purely situational, and it is too soon to determine if applicant is now conducting his affairs in a financially responsible manner,” the judge said.