BILL ANALYSIS
Senate Committee on Labor and Industrial Relations
Mark DeSaulnier, Chair
Date of Hearing: June 9, 2010 2009-2010 Regular
Session
Consultant: Alma Perez Fiscal:Yes
Urgency: No
Bill No: AB 482
Author: Mendoza
Version: As amended April 8, 2010
SUBJECT
Employment: credit reports.
KEY ISSUE
Should employers be banned from using information found in
consumer credit reports to help make employment decisions?
PURPOSE
To prohibit the use of consumer credit reports for employment
purposes, except as specified.
ANALYSIS
Existing federal and state law limits the use of credit
information for employment purposes. Under the existing
California Consumer Credit Reporting Agencies Act (CCRAA), a
credit report in the employment context is defined as any
written, oral or other communication of any information by a
consumer credit reporting agency (CRA) bearing on an
individual's credit worthiness, credit standing or credit
capacity. The consumer credit report is used (or is expected to
be used) for the purpose of serving as a factor in establishing
an individual's eligibility for (1) personal, family, or
household purposes, or (2) employment purposes, or (3) hiring of
a dwelling unit, as specified, or (4) for other purposes as
specified. "Employment purposes," when used in connection with a
consumer credit report, means a report used for the purpose of
evaluating a consumer for employment, promotion, reassignment,
or retention as an employee. (Civil Code 1785.3)
The existing federal Fair Credit Reporting Act (FCRA) was
enacted to promote accuracy, fairness, and privacy of personal
information assembled by consumer credit reporting agencies. (15
U.S.C. 1681 et seq.) The FCRA places restrictions on an
employer's ability to use credit reports for employment purposes
by regulating how employers may use consumer reports. The FCRA
does not exempt employers from complying with state law
governing background checks. If information from a credit
report is used for employment purposes, the FCRA requires that
the employer:
Make a clear and conspicuous written disclosure to the
applicant before the report is obtained, as specified, that
a consumer report may be obtained;
Obtain prior written authorization from the applicant;
Certify to the CRA that the employer disclosed and
obtained authorization to review the credit report and
disclosed to the applicant that the information will not be
used in violation of any federal or state equal-opportunity
law or regulation, as specified.
Before taking an adverse action based on the credit
report, provide the person with notice of the adverse
decision and the name, address, and telephone number of the
consumer reporting agency making the report. In addition,
the employer is also required to give the employee a copy
of the credit report, a summary of FCRA rights with
information on how to dispute the contents of the report,
and other documents as specified. (15 U.S.C. 1681 et seq.)
The California Consumer Credit Reporting Agencies Act (CCRAA) ,
which is the state's counterpart to the FCRA, generally
regulates consumer credit reporting agencies and requires every
consumer credit reporting agency to allow a consumer, upon
request and with proper identification, to visually inspect all
the files pertaining to him or her that the agency maintains at
the time of the request. (Civil Code 1785.1 et seq.) The CCRAA
allows consumers to dispute inaccurate information on a consumer
credit report and requires a consumer credit reporting agency to
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Senate Committee on Labor and Industrial Relations
reinvestigate disputed information without charge.
The existing federal Gramm-Leach-Bliley Act (GLB) prohibits
financial institutions from disclosing a consumer's nonpublic
personal information to a nonaffiliated third party unless the
financial institution (1) provides the consumer with a clear and
conspicuous disclosure of the financial institutions' specified
privacy policies and practices, (2) gives the consumer the
opportunity to stop the disclosure before the information is
initially disclosed (opt-out), and (3) provides the consumer
with an explanation of how to exercise his or her right to
opt-out. (15 U.S.C. 6801 et seq.)
This Bill would prohibit an employer, except as specified, from
obtaining a consumer credit report for employment purposes.
Specifically, this bill would:
1. Prohibit the use of a consumer credit report for
employment purposes unless:
o The information contained in the report is
substantially job-related, meaning that the position
of the person for whom the report is sought has access
to money, other assets, or confidential information.
o The position of the person for whom the report
is sought is a managerial position, a position in the
state Department of Justice, a sworn peace officer or
other law enforcement position, or a position for
which the information contained in the report is
required to be disclosed by law or to be obtained by
the employer.
1. Provide that these provisions do not apply to a person
or business subject to the federal Gramm-Leach-Bliley Act
(governing financial institutions) and implementing
regulations, if the person or business is subject to
compliance oversight by a state or federal regulatory
agency with respect to those laws.
COMMENTS
Hearing Date: June 9, 2010 AB 482
Consultant: Alma Perez Page 3
Senate Committee on Labor and Industrial Relations
1. Need for this bill?
Employers frequently use credit reports to evaluate job
applicants for employment opportunities. There are three
national reporting agencies, TransUnion, Equifax, and
Experian, which often provide credit information to employers
through intermediary companies. In the past, generally only
banks and financial service companies routinely ran credit
checks on potential employees, but today employers in other
sectors are increasingly including credit reports in the
screening process to verify identity, employment history and
presumably to assess applicants' honesty, integrity, and
responsibility, among other traits.
According to the United States Equal Employment Opportunity
Commission (EEOC), as employer credit checks have become more
common over the past several years the EEOC has reiterated its
concerns that credit check policies can have an unlawful
disparate impact in violation of Title VII's prohibitions
against race and national origin discrimination. According
to the EEOC, as early as the 1970s, the Commission issued
decisions finding that employers could violate Title VII by
basing employment decisions on a worker's financial status.
(EEOC Testimony, March 19, 2009) This bill would prohibit an
employer, with the exception of certain financial
institutions, from obtaining a consumer credit report for
employment purposes, except as specified.
2. Consumer Credit Reporting Legislation in Other States and at
the Federal Level :
In 2007, Washington State enacted a law (Chapter 93, Laws of
2007) that prohibits a person from procuring a consumer report
for employment purposes where any information contained in the
report bears on the consumer's credit worthiness, credit
standing, or credit capacity, unless the information is either
substantially job-related and the employer's reasons for the
use of such information are disclosed to the consumer in
writing, or is required by law. In July 2009, Hawaii became
the second state behind Washington to limit the use of credit
histories in pre-employment screening. And on May 29, 2010,
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Oregon's Governor signed legislation (SB 1045) that prohibits
employers from using credit history in making hiring,
discharge, promotion, and compensation decisions unless the
applicant or employee is given advanced written notice and the
credit history is substantially related to the position
sought. Several other states have pending legislation on the
subject.
At the federal level, in July of 2009, Representative Steve
Cohen introduced HR 3149, the "Equal Employment for All Act,"
which would prohibit the use of consumer credit checks against
prospective and current employees for the purposes of making
adverse employment decisions. HR 3149 is currently pending
consideration in the House Committee on Financial Services.
Also at the federal level, Senator Diane Feinstein has
introduced SA 3795 as part of an amendment to S. 3217, the
Restoring American Financial Stability Act of 2010. Much like
pending HR 3149, Senate Amendment 3795 would prohibit the use
of credit checks for employment purposes. Specifically, SA
3795 would restrict employers from using a consumer's
creditworthiness, credit standing, or credit capacity in
making any employment decision, with some exceptions, or for
the basis of taking any adverse action - even if the employer
gets authorization for the background check report from the
consumer. The suggested amendments were introduced in early
May 2010 and are currently pending consideration.
3. Double Referral to the Senate Judiciary Committee:
If approved by the Senate Labor and Industrial Relations
Committee, this bill will go to the Senate Judiciary
Committee, per Senate Rules.
4. Proponent Arguments :
Proponents of the measure argue that working families in
California are facing the worst economic crisis since the
Great Depression. Unemployment is at a twenty-five year high,
500 families lose their homes to foreclosure each day, and
those who have jobs are facing furloughs and wage cuts.
According to proponents, in this economic climate
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particularly, a person's credit history says nothing about his
or her character or ability to do a job effectively and
responsibly. Yet, proponents argue, employers routinely rely
on credit reports to deny employment to those who would have
otherwise been given a job.
According to the author, the Society of Human Resource
Management has reported that forty-three percent of US
employers currently conduct credit checks on job applicants.
Proponents believe that this is unfair, as there is no
evidence of any correlation between credit score and job
performance. In addition, the author states that the Equal
Employment Opportunity Commission has expressed concern that
the use of credit reports in employment may have a disparate
impact against people of color and women workers who are
concentrated in low-wage jobs. The author believes this bill
is needed to ensure that job opportunities will not be
unfairly denied to those hit hardest by the current economic
crisis.
Proponents are also concerned that conducting credit checks is
flawed by the high rate of errors in credit reports as well as
the over reliance on out-dated information about an
individual. In addition, proponents argue that the rise in
identity theft, data breaches, and the improper sale of credit
information, as well as negligence by credit reporting
agencies can all result in damaging information appearing on
an individual's credit report through no fault of their own.
The author believes this bill would provide an important
worker protection without placing unreasonable restrictions on
employers.
5. Opponent Arguments :
According to opponents of the bill, employers strive to
recruit and retain the best employees who they trust and will
help grow their businesses. To this end, opponents argue,
consumer credit reports provide valuable information to
employers in decision-making processes including the hiring or
promotion of an individual. According to opponents, consumer
credit reports provide important insight into one aspect of a
potential employee's ability to handle responsibility for
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Senate Committee on Labor and Industrial Relations
cash, other assets, and personal information while at the same
time allowing employers to verify an applicant's employment
history.
Opponents argue that while an individual's credit history by
itself is not predictive of potential theft, access to credit
information can reveal patterns that may present an
unreasonable risk to businesses. Furthermore, opponents argue
that employee theft is a growing problem. Opponents contend
that the U.S. Chamber of Commerce rates the annual cost of
employee theft at $40 billion. In addition, opponents argue
that on average, businesses lose as much as two percent of
sales to employee theft. Opponents believe that an employee
with high consumer debt who handles cash or assets may be more
likely to steal, but this bill prohibits an employer form
accessing this important information as a part of their hiring
process.
According to opponents, this bill prohibits employers from
performing their due diligence in screening applicants, thus
subjecting employers to a greater risk of inadvertently
violating the law or being subject to frivolous employment
litigation. In addition, opponents believe that by
restricting access to important information found in consumer
credit reports; this bill may expose the business' customers
and employees to increased risks such as identity, financial,
and asset theft. This issue is of particular concern to the
rental housing industry which argues that many of their
employees have significant financial responsibilities,
including the collection of rents and maintenance of on-site
cash flow, yet this bill would prohibit them from using
consumer credit reports when considering applicants for
employment.
Overall, opponents of the measure argue that this bill unduly
restricts the ability of businesses to use all legally
available information in employment decisions.
6. Prior Legislation :
AB 943 (Mendoza) of 2009: Vetoed by the Governor
This bill would have prohibit the use of consumer credit
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Senate Committee on Labor and Industrial Relations
reports for employment purposes unless the information was
either substantially job related, as defined, or required by
law to be disclosed to or obtained by the user of the report.
AB 482 (Mendoza) is almost identical to last year's bill,
except that AB 482 does not exempt a city, county, or both
city and county from the prohibition of using a consumer
credit report for a position. AB 943 was vetoed by the
Governor, and in his veto message the Governor stated that:
"This bill is similar to legislation I vetoed last year
on the basis that California's employers and businesses
have inherent needs to obtain information about applicants
for employment and existing law already provides
protections for employees from improper use of credit
reports. As with last year's bill, this measure would also
significantly increase the exposure for potential
litigation over the use of credit checks."
AB 2918 (Lieber) of 2008: Vetoed by the Governor
Similar to AB 943, this bill would have prohibited, except as
specified, the user of a consumer credit report from procuring
a consumer credit report for employment purposes unless the
information in the report was either substantially job
related, as defined, or required by law to be disclosed to or
obtained by the user of the report.
SB 986 (Escutia) of 2005: Bill Withdrawn by Author
This bill would have revised the definition of "employment
purposes" to require that when a consumer credit report or
investigative report is used for employment purposes, the
information be directly related to the skills necessary to
perform the job. The bill was not pursued by the author and
it was never heard in policy committee.
SUPPORT
American Civil Liberties Union (ACLU)
American Federation of State, County and Municipal Employees
(AFSCME)
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Senate Committee on Labor and Industrial Relations
California Commission on the Status of Women
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Employment Lawyers Association
California Labor Federation, AFL-CIO
California Teamsters Public Affairs Council
Engineers and Scientists of California
International Longshore & Warehouse Union
National Employment Law Project
Professional & Technical Engineers, Local 21
UNITE HERE!
United Food and Commercial Workers Union, Western States Council
OPPOSITION
Apartment Association of Greater Los Angeles
Apartment Association of Orange County
Apartment Association, Southern California Cities
Associated General Contractors
Association of California Insurance Companies
Association of California Life & Health Insurance Companies
California Apartment Association
California Association of Joint Powers Authorities
California Association of Licensed Investigators
California Chamber of Commerce
California Chapter of the American Fence Association
California Fence Contractors Association
California Framing Contractors Association
California Grocers Association
California Hospital Association
California Independent Grocers Association
California Manufacturers & Technology Association
California New Car Dealers Association
California Restaurant Association
California Retailers Association
California State Association of Counties (CSAC)
Engineering Contractors Association
Experian
First American Corporation
Flasher/Barricade Association
League of California Cities (LCC)
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Senate Committee on Labor and Industrial Relations
Life Technologies Corporation
Marin Builders' Association
National Federation of Independent Business (NFIB)
Regional Council of Rural Counties (RCRC)
Santa Barbara Rental Property Association
TransUnion
Western Electrical Contractors Association
* * *
Hearing Date: June 9, 2010 AB 482
Consultant: Alma Perez Page 10
Senate Committee on Labor and Industrial Relations