BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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                                 THIRD READING


          Bill No:  AB 482
          Author:   Mendoza (D)
          Amended:  7/15/10 in Senate
          Vote:     21

           
           2009 SENATE VOTES NOT RELEVANT
          
          SENATE LABOR & INDUST. RELATIONS COMMITTEE  :  4-0, 6/9/10
          AYES:  DeSaulnier, Ducheny, Leno, Yee
          NO VOTE RECORDED:  Wyland, Hollingsworth

           SENATE JUDICIARY COMMITTEE  :  3-1, 6/29/10
          AYES:  Corbett, Hancock, Leno
          NOES:  Harman
          NO VOTE RECORDED:  Walters

           SENATE APPROPRIATIONS COMMITTEE  : 7-3, 08/02/10
          AYES: Kehoe, Alquist, Corbett, Leno, Price, Wolk, Yee
          NOES: Ashburn, Emmerson, Wyland
          NO VOTE RECORDED: Walters
           
          ASSEMBLY FLOOR  :  Not relevant


           SUBJECT  :    Employment:  credit reports

           SOURCE  :     Author


           DIGEST  :    This bill prohibits an employer, with the  
          exception of certain financial institutions, from obtaining  
          a consumer credit report for employment purposes unless the  
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          information is (1) substantially job-related, meaning that  
          the person for whom the report is sought has access to  
          money, other assets, or trade secrets or other confidential  
          information, and (2) the position of the person for whom  
          the report is sought is a position in the Department of  
          Justice, a managerial position, that of 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 obtained by the  
          employer.

           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.  
              
           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.  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:

          1. Make a clear and conspicuous written disclosure to the  
             applicant before the report is obtained, as specified,  
             that a consumer report may be obtained.








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          2. Obtain prior written authorization from the applicant.

          3. 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. 

          4. 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.
           
           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.  The  
          CCRAA allows consumers to dispute inaccurate information on  
          a consumer credit report and requires a consumer credit  
          reporting agency to 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.
            
          This bill prohibits an employer, except as specified, from  
          obtaining a consumer credit report for employment purposes.  
           Specifically, this bill:








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          1. Prohibits the use of a consumer credit report for  
             employment purposes unless:

             A.    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. 
                       
             B.    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. 

          2. Provides 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.

           Prior Legislation

           AB 943 (Mendoza), 2009-10 Session, which was vetoed by the  
          Governor, would have prohibited the use of consumer credit  
          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:  "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." 







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          AB 2918 (Lieber), 2007-08 Session, which was vetoed by the  
          Governor and is similar to AB 943, 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), 2005-06 Session, 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 was never heard in policy  
          committee. 

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

          According to the Senate Appropriations Committee:

                          Fiscal Impact (in thousands)

             Major Provisions                2010-11     2011-12     
             2012-13               Fund  

            New enforcement               Up to $60           Up to  
            $120                Up to $120          Special*
            requirement

            * Labor Enforcement and Compliance Fund

           SUPPORT  :   (Verified  8/4/10)

          American Civil Liberties Union 
          California Commission on the Status of Women
          California Conference Board of the Amalgamated Transit  
          Union
          California Conference of Machinists
          California Labor Federation, AFL-CIO
          California Teamsters Public Affairs Council
          Consumer Action







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          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
          SEIU California
          United Food and Commercial Workers Union, Western States  
          Council
          UNITE HERE!
          
           OPPOSITION  :    (Verified  8/4/10)

          Apartment Association of Orange County
          Apartment Association, Southern California Cities
          Association of California Insurance Companies
          Association of California Life & Health Insurance Companies
          Association of California Water Agencies
          California Advocates
          California Apartment Association
          California Association of Licensed Investigators
          California Chamber of Commerce
          California Chapter of the American Fence Association
          Consumer Data Industry Association
          California Fence Contractors Association 
          California Grocers Association
          California Hospital Association
          California Independent Grocers Association
          California Manufacturers & Technology Association
          California New Car Dealers Association
          California Retailers Association
          California Special Districts Association
          California State Association of Counties
          Consumer Data Industry Association
          Corona Chamber of Commerce
          Engineering Contractors Association
          Experian 
          First American Corporation
          Flasher/Barricade Association
          Independent Maintenance Contractors Association
          League of California Cities
          Life Technologies Corporation







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          Marin Builders' Association
          National Federation of Independent Businesses
          Pacific Association of Building Service Contractors
          Regional Council of Rural Counties
          Simi Valley Chamber of Commerce
          TransUnion

           ARGUMENTS IN SUPPORT  :    Proponents argue that working  
          families in California are facing the worst economic crisis  
          since the Great Depression.  Unemployment is at a 25-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.  

          According to the author's office, the Society of Human  
          Resource Management has reported that 43 percent of United  
          States 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's  
          office 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's office 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's office believes this bill  
          provides an important worker protection without placing  







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          unreasonable restrictions on employers. 

           ARGUMENTS IN OPPOSITION  :    According to opponents,  
          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  
          cash, other assets, and personal information while at the  
          same time allowing employers to verify an applicant's  
          employment history. 

          Opponents maintain 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 state that employee theft is a growing problem.   
          Opponents contend that the United States 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.  

          Opponents argue that 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  







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          considering applicants for employment.  

          Overall, opponents argue that this bill unduly restricts  
          the ability of businesses to use all legally available  
          information in employment decisions. 


          PQ:mw  8/4/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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