BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 482| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED AB 482 Page 2 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. AB 482 Page 3 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: AB 482 Page 4 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." AB 482 Page 5 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 AB 482 Page 6 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 AB 482 Page 7 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 AB 482 Page 8 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 AB 482 Page 9 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 **** END ****