There's a standoff between business owners and Democratic state legislators in Maryland over a popular hiring practice: checking an employee's credit.

State Rep. Kirill Reznik, after hearing complaints from out-of-work constituents, proposed legislation that would restrict an employer's ability to use credit history against existing employees or potential hires. "In this bad economy, when they leave their jobs and get behind on their bills, their credit reports go bad. When they try to get a job, they're unable to – and get stuck in an unfair Catch-22," Reznik says.

Maryland is just one of at least 16 states across the country that are considering legislation to ban or limit credit checks on job applicants, according to the National Conference of State Legislatures. Hawaii and Washington state already have laws that restrict the practice, which is for many businesses a standard component of a pre-hiring background check.

A recent survey by the Society for Human Resource Management found that 60 percent of employers asked said they run credit checks on at least some job applicants. That's up from almost 43 percent in a similar 2006 survey.

In most states, employers can check job applicants and current employees' histories for overdue payments on mortgages, credit cards, loans, rent and more. Credit checks are viewed as part of a hiring strategy to prevent putting at-risk or untrustworthy applicants into positions where they could do harm to the company.

But opponents call the practice discriminatory and unnecessary.

Wisconsin State Rep. Kim Hixton proposed legislation banning discriminatory credit checks for jobs not substantially related to an individual's credit history. He tells that while he can see relevance of personal finances to the hiring of an investment banker, for a truck driver, librarian or gym employee, it's irrelevant, and should be illegal.

"I've had some employers tell me a credit report is a mark of a person's character. They say, 'if they have a good credit history, I know they are trustworthy," Hixton said. "That's just not always going to be the case, so hiring based on it is discriminatory."

In Washington State, a law signed in 2007 mandates that employers in the state may not access credit reports of employees or job applicants unless the information is significantly related to the employee or individual's job responsibilities.

Stuart Ishimaru, chairman of the Equal Employment Opportunity Commission under both Presidents Bush and Obama, is a vocal critic of employee credit checks. He's called for the agency to issue guidelines on how to carry out background checks in a non-discriminatory manner.

Current federal law requires employers to have written permission from applicants to check their credit history.  Legislation to further restrict employee credit-checks has floundered. Rep. Steve Cohen, a Tennessee Democrat, introduced a bill last summer that would amend the Fair Credit Reporting Act to prohibit the use of consumer credit checks against employees "for the purposes of making adverse employment decisions." Almost since introduction, the bill has been trapped in committee.

In Wisconsin, a constituent brought the matter to Hixton's attention. Auto mechanic Terry Becker was struggling to find work when his son began having seizures. He ran up $25,000 of medical debt in one year. Becker was turned down for at least eight jobs in which he had authorized the potential employer to do a credit check.

Hixton says that Becker explained to potential employers that past medical bills had fouled up his credit history, but still none would hire him. The Associated Press reports that one employer told him: "If your credit is bad, then you'll steal from me."

The district Hixton represents includes part of Rock County, Wisconsin, which has been extremely hard-hit by the closure of a General Motors plant last year, and currently has 16 percent unemployment.

"We have a lot of people who by no fault of their own are out of jobs and still needing to make payments," Hixton said. "If they can't get a job due to a credit report that could be bad due to being unemployed, it's a vicious cycle."

Maryland's legislation is finding tough opposition from state business leaders and chambers of commerce. Details are being hammered out in committee currently. Reznik said the bill is timely – and the economy is a factor for why more than a dozen other states are considering similar measures.

"I think we need to help people get back on their feet. There is no better time for a bill like this than right now, because we are seeing record unemployment," he said. "The only way to turn this back around is to get people back to work."

The proposed bill in Maryland would apply to employers based in Maryland only, while the Wisconsin legislation would affect employers hiring state residents. Washington State's existing law appears to apply to both residents and employers that are based primarily in Washington.

For more on using credit reports in hiring, see the Federal Trade Commission's report on the matter.