BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 482 (Mendoza)
As Amended April 8, 2010
Hearing Date: June 29, 2010
Fiscal: Yes
Urgency: No
KB:jd
SUBJECT
Employment: Credit Reports
DESCRIPTION
This bill would ban the use of consumer credit reports in
employment, unless two criteria are met. First, the information
in the credit report must be substantially job-related, where
the applicant or promotion candidate would have access to money,
trade secrets, other assets, or confidential information.
Second, the position sought is either managerial, a position in
the state Department of Justice, sworn peace officer or other
law enforcement position, or the credit report information is
already required by law. This bill would also exempt financial
institutions already subject to existing privacy requirements
under federal law.
(The analysis reflects author's amendments to be offered in
committee.)
BACKGROUND
The 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.
Sec. 1681 et seq.) The FCRA regulates how employers may use
consumer reports, which are defined as reports containing
information pertaining to a person's credit worthiness, credit
standing, credit capacity, character, general reputation,
personal characteristics, or mode of living. The FCRA does not
exempt employers from complying with state laws governing
(more)
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background checks.
The FCRA only applies where an employer uses a third-party to
perform a background check. In that event, the FCRA requires
that the employer notify the applicant and obtain consent for
the background check. If an adverse decision is made based upon
the background check, the employer must provide the applicant
with notice of the adverse decision and the name, address, and
telephone number of the consumer reporting agency making the
report. The employer is also required to give the applicant a
copy of the report and information on how to dispute the
contents of the report.
California's Consumer Credit Reporting Agencies Act (CCRAA), the
state's counterpart to the FCRA, generally regulates consumer
credit reporting agencies. (Civ. Code Sec. 1785.1 et seq.)
Among other things, the CCRAA requires every consumer credit
reporting agency to allow a consumer, upon request and with
proper identification, to visually inspect all files pertaining
to him or her that the agency maintains at the time of the
request. The CCRAA permits consumers to dispute inaccurate
information and requires a consumer credit reporting agency to
reinvestigate disputed information without charge.
Additionally, California law, the Investigative Consumer
Reporting Agencies Act, generally regulates investigative
consumer reporting agencies. (Civ. Code Sec. 1786 et seq.)
Such agencies are defined as any person, corporation, or other
entity that collects, reports, or transmits information
concerning consumers for the purpose of providing investigative
consumer reports to third parties, as specified. Investigative
consumer reports may be given only to third parties the agency
believes is using the information for (1) employment purposes,
(2) determining a consumer's eligibility for insurance, (3)
hiring a residential unit, or (4) other specified reasons.
Federal law, the Gramm-Leach-Bliley Act (GLB), prohibits a
financial institution 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 institution's 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. Sec. 6801 et seq.)
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In the past, generally only banks and financial service
companies routinely ran credit checks on potential employees.
But employers in other sectors increasingly are including credit
checks in the screening process presumably to assess applicants'
honesty and integrity, among other traits. AB 482 would
prohibit the use of credit checks for employment except under
specified circumstances. This bill is substantially similar to
AB 943 (Mendoza, 2009), which was vetoed by the governor.
This bill was approved on June 9, 2010 by the Senate Labor and
Industrial Relations Committee on vote of 4-0.
CHANGES TO EXISTING LAW
Existing law requires, prior to requesting a consumer credit
report for employment purposes, the user of the report to
provide notice to the person involved. The notice must inform
the person that a report will be used and the source of the
report, and must contain a box that the person may check off to
receive a copy of the credit report. If the consumer indicates
that he or she wishes to receive a copy of the credit report,
the user must request that a copy be provided to the person when
the user requests its copy from the credit reporting agency; and
the report must be provided to the user and the person
contemporaneously at no charge to the person. (Civ. Code Sec.
1785.20.5.)
Existing federal law , GLB, prohibits, except as specified, a
financial institution from disclosing a consumer's nonpublic
personal information to a nonaffiliated third party. (15 U.S.C.
Sec. 6801 et seq.)
This bill would prohibit an employer from obtaining a consumer
credit report for employment purposes unless the information in
the report is (1) substantially job related, meaning that the
position has access to money, trade secrets, other assets, or
confidential information; and (2) the position is a managerial
position, a position in the state Department of Justice, that of
a sworn peace office 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.
This bill would provide that its provisions do not apply to a
person or business subject to GLB, if the person or business is
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subject to compliance oversight by a state or federal regulatory
agency with respect to statutes and regulations implementing
GLB.
COMMENT
1.Stated need for the bill
According to the author, the Society of Human Resource
Management has reported that forty-three percent of U.S.
employers currently conduct credit checks on job applicants.
The author asserts that pre-employment credit checks pose an
obstacle to individuals who have lost their jobs and are
struggling financially. The author points out that California's
unemployment rate is at 12.5 percent -- higher than the national
average by 2.5 percent, and has increased by 1 percent since
2009. According to the author, a 12.5 percent unemployment rate
means that roughly 4.6 million people are unemployed (based on a
2009 Census population estimate). The author further asserts
that individuals who have lost their jobs are caught in a credit
catch-22; they have no source of income necessary to pay bills,
yet ability to gain employment may be hampered by a poor credit
score. 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.
2.Potential discriminatory implications of employer credit
checks
Under Title VII of the Civil Rights Act of 1964 (Title VII),
employers are prohibited from discriminating on the basis of
race, color, religion, sex, or national origin. It is unlawful
to discriminate against any individual in regard to recruiting,
hiring and promotion, transfer, work assignments, performance
measurements, the work environment, job training, discipline and
discharge, wages and benefits, or any other term, condition, or
privilege of employment. Title VII prohibits not only
intentional discrimination, but also neutral job policies that
disproportionately affect persons of a certain race or color and
that are not related to the job and the needs of the business.
(See Griggs v. Duke Power Co., (1971) 401 U.S. 424, 431 ("The
Act proscribes not only overt discrimination but also practices
that are fair in form, but discriminatory in operation.").)
Accordingly, if an employment practice has a disparate impact
based on a protected characteristic, the practice is unlawful
unless the employer can establish that it is job related and
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consistent with business necessity. (42 U.S.C. Sec.
2000e-(k)(1)(A)(i).)
The U.S. Equal Employment Opportunity Commission (EEOC) has had
a longstanding position that credit checks can have an unlawful
disparate impact in violation of Title VII's prohibitions
against race and national origin discrimination. (See EEOC Dec.
72-1176 (1972) (bank policy of using credit information to
evaluate potential employee was unlawful in the absence of
business justification); EEOC Dec. 74-02 (1973) (manufacturing
company's policy of looking at applicants' financial status was
unlawful in absence of business justification).) Last year,
before the Hawaii State Senate Committee on Labor, the Acting
Chairman of the EEOC outlined why, in most cases, employers'
credit check policies will be problematic under Title VII's
disparate impact standard. "First, credit reports are often
inaccurate and may include errors that are serious enough for an
individual to be denied a loan or employment. Second, negative
credit information may not account for individual circumstances
that could have been beyond an individual's control, such as
developing a disability, divorce, death of a spouse, illness of
a family member, identity theft, or employer downsizing.
Finally, even assuming that a credit report is an accurate
account of an individual's credit history, there is little, if
any evidence that credit information will generally be
predictive of successful job performance (citations omitted)."
(See U.S. EEOC, Office of the Chairman, Testimony Before the
Hawaii State Senate Committee on Labor, Thursday, March 19,
2009.)
As these credit checks become more commonplace, the concern over
the disparate impact of employer credit check policies continues
to grow, particularly during this economic climate where
unemployment rates have skyrocketed and more individuals are
struggling financially.
3.This bill would prohibit credit checks except under specified
circumstances
In an effort to curb unwarranted credit checks in the employment
context, this bill would prohibit an employer from obtaining a
credit check for employment purposes unless the information in
the report is: (1) substantially job related, meaning that the
position has access to money, other assets, or confidential
information; and (2) the position is a managerial position, a
position in the state Department of Justice, that of a sworn
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peace office 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.
The author has further offered amendments that would include
access to trade secrets within the meaning of "substantially
job-related." Thus, for example, employers could obtain a
credit check for employment purposes when an applicant is
applying for a managerial position that involves access to trade
secrets. "Trade secret" would be defined as information,
including a formula, pattern, compilation, program, device,
method, technique, or process, that: (1) derives independent
economic value, actual or potential, from not being generally
known to the public or to other persons who can obtain economic
value from its disclosure or use; and (2) is the subject of
efforts that are reasonable under the circumstances to maintain
its secrecy. This definition mirrors the one codified in the
Uniform Trade Secrets Act. (Civ. Code Sec. 3426.1.)
4.Governor's Veto Message
Last year, the Legislature passed a similar measure, AB 943
(Mendoza, 2009) which was substantially similar to AB 482,
except that bill included a position in a city or county
government among those exempted from the bill's prohibition.
AB 943 was vetoed by the Governor, who stated the following in
his veto message:
This bill would prohibit the use of consumer credit reports
for employment purposes unless the information is either
substantially job related, as defined, or required by law to
be disclosed to or obtained by the user of the report.
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.
The author has since conducted research to determine whether
increased litigation has been a problem in other states where
similar laws have been enacted. However, the author has not
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been able to find any evidence of increased litigation over
credit checks for employment purposes in states such as
Washington and Hawaii. Thus, there appears to be no basis for
the contention that this bill would significantly increase
exposure for potential litigation over the use of credit checks.
5.Arguments in support
Proponents of this bill 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 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. 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.
Further, the American Civil Liberties Union, in support of this
bill writes:
Another concern about the use of credit reports in the
employment context is the rise in identity theft, data
breaches, and the improper sale of credit information. These
factors, as well as outright negligence by the credit
reporting agencies, can result in damaging information
appearing on an individual's credit report - through no fault
of their own.
6.Arguments in opposition
In opposition to the bill, a coalition of business interests
contends 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 resulting from an irresponsibility with regard to, or
inability to, handle personal financial commitments. The
opposition further asserts that this bill "prohibits employers
from performing their due diligence in screening applicants,
thus subjecting employers to a greater risk of inadvertently
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violating the law or being subject to frivolous employment
litigation. This risk is compounded by the fact that, in most
situations, employers are liable for the actions of employees in
the performance of their job duties, so an employee may take
actions that bring an unacceptable level of liability on their
employer."
As previously stated, unlike AB 943 (Mendoza, 2009), this bill
does not include an exemption for city and county employees.
The opposition raises concerns that "[m]any city and county
employees have the authority and obligation to enforce laws,
handle money, and make recommendations or decisions that can
have profound impact on the lives of others. These and other
responsibilities make it imperative that city and county
employers be allowed to conduct reasonable and appropriate
background checks as part of the hiring process. In some cases,
the use of a consumer credit report is part of this process."
Support : American Civil Liberties Union (ACLU); American
Federation of State, County and Municipal Employees (AFSCME);
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; Consumer Federation of
California; Engineers and Scientists of California; Friends
Committee on Legislation of California; International Longshore
& Warehouse Union; Los Angeles Mission; National Employment Law
Project; Privacy Rights Clearinghouse; Professional & Technical
Engineers, Local 21; Service Employees International Union;
UNITE HERE!; United Food and Commercial Workers Union; Western
States Council
Opposition : Apartment Association - Greater Los Angeles, Orange
County, and Southern California Cities; Association of
California Water Agencies (unless amended); Associated General
Contractors; Association of California Insurance Companies;
Association of California Life & Health Insurance Companies;
California Apartment Association; California Association of
Joint Powers Authorities (unless amended); California
Association of Licensed Investigators; California Chamber of
Commerce; California Chapter of the American Fence Association;
California Framing Contractors Association; California Grocers
Association; California Hospital Association; California
Independent Grocers Association; California Manufacturers &
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Technology Association; California New Car Dealers Association;
California Restaurant Association; California Retailers
Association; California State Association of Counties (unless
amended); California Special Districts Association (unless
amended); Engineering Contractors Association; Experian; First
American Corporation; Flasher/Barricade Association; First
American Corporation; League of California Cities (unless
amended); Life Technologies Corporation; Marin Builders'
Association; National Federation of Independent Business;
Regional Council of Rural Counties (Unless Amended); Santa
Barbara Rental Property Association; TransUnion; Western
Electrical Contractors Association; Ten Individuals
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation :
AB 943 (Mendoza, 2009). See Comment 3.
AB 2918 (Lieber, 2008) 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. This bill was vetoed by the Governor.
SB 986 (Escutia, 2005) 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.
Prior Vote :
Senate Labor and Industrial Relations Committee (Ayes 4, Noes 0)
Prior votes are not relevant as this bill was substantively
amended to deal with a different subject matter.
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