BILL ANALYSIS
AB 482
Page 1
Date of Hearing: August 30, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 482 (Mendoza) - As Amended: July 15, 2010
FOR CONCURRENCE
SUBJECT : EMPLOYMENT: CREDIT REPORTS
KEY ISSUE : SHOULD EMPLOYERS BE BANNED FROM USING CONSUMER
CREDIT REPORTS IN EMPLOYMENT DECISIONS, EXCEPT WHEN THE
INFORMATION IS SUBSTANTIALLY JOB-RELATED AND THE POSITION SOUGHT
IS EITHER MANAGERIAL OR A SWORN PEACE OFFICER, OR THE
INFORMATION IS ALREADY REQUIRED BY LAW?
SYNOPSIS
This bill bans 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,
other assets, trade secrets, or other confidential information.
Second, the position sought is either managerial, a sworn peace
officer or employee of the state Department of Justice, or the
information is already required by law. This bill also exempts
financial institutions already subject to existing privacy
requirements under federal law. The author contends that the
record-high unemployment rate and foreclosure crisis has
increased the urgent need for this worker protection. Moreover,
the author contends that credit scores are not accurate
predictors of employability.
This bill is very similar to AB 943 (Mendoza), which was vetoed
by the Governor last year because "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"
and that bill could "significantly increase the exposure for
potential litigation over the use of credit checks." However,
there appears to be no evidence to support the contention that
this bill would significantly increase exposure for potential
litigation over the use of credit checks.
SUMMARY : Prohibits, except as specified, the use of consumer
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credit reports for employment purposes. Specifically, this
bill :
1 Prohibits an employer from using a consumer credit report for
employment purposes unless:
a) The information contained in the report is substantially
job-related, meaning that the position has access to money,
other assets, trade secrets, as defined, or other
confidential information; and
b) The position of the person for whom the report is sought
is any of the following:
i) A managerial position.
ii) A position in the state Department of Justice.
iii) A sworn peace officer or other law enforcement
position.
iv) 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.
3)Provides that the Legislature finds that, among other things:
a) According to cited reports, as many as 60 percent of
employers rely on consumer credit reports in preemployment
hiring considerations and nearly 80 percent of these
reports contain erroneous information.
b) Using credit reports in preemployment hiring
considerations poses a barrier to employment to many
individuals, and there is little evidence that it is
indicative of whether a job seeker can successfully perform
his or her duties.
c) It is the intent of the Legislature to lower barriers to
employment for those individuals who have been impacted by
the current economic crisis and are struggling to find
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work.
EXISTING LAW :
1)Requires, under the federal Fair Credit Reporting Act (FCRA),
that the employer using a third-party to perform a background
check must notify the applicant and obtain consent for the
background check. (15 U.S.C. Section 1681 et seq.)
2)Requires, under the FCRA, that if an adverse decision is made
based upon the background check, the employer must provide the
applicant 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
employee a copy of the report and information on how to
dispute the contents of the report. (15 U.S.C. Section 1681
et seq.)
3)Requires, under California's Consumer Credit Reporting
Agencies Act (CCRAA), 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. (Civil Code Section 1785.1 et seq.)
4)Allows, under the CCRAA, consumers to dispute inaccurate
information and requires a consumer credit reporting agency to
reinvestigate disputed information without charge. (Civil
Code Section 1785.1 et seq.)
5)Authorizes, under the California's Investigative Consumer
Reporting Agencies Act, investigative consumer reports to be
given only to third parties the investigative consumer
reporting 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. (Civil Code Section 1786 et seq.)
6)Prohibits, under the federal Gramm-Leach-Bliley Act (GLB), 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
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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. Section 6801 et seq.)
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
COMMENTS : This bill seeks to 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, other assets, trade secrets, or other
confidential information. Second, the position sought must be
either managerial, with the state Department of Justice, a sworn
peace officer, or required by law. This bill also seeks to
exempt financial institutions already subject to existing
privacy requirements under federal law.
Background : Currently, employers frequently use credit reports
to evaluate job applicants. Three national reporting agencies,
TransUnion, Equifax, and Experian, provide credit information to
employers often through intermediary companies. Credit checks
for employment purposes have risen dramatically in recent years,
and now, according to the Society for Human Resources
Management, as many as 60 percent of employers perform credit
checks on job applicants.
The 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
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 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. The FCRA requires that, if an adverse
decision is made based upon the background check, the employer
must provide the applicant notice of the adverse decision and
the name, address, and telephone number of the consumer
reporting agency making the report. The employer is also
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required to give the employee 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. 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. 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.
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.
Recent Legislative in Washington State : In 2007, Washington
State enacted a law that prohibits a person from procuring a
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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.
Exemptions : This bill allows for usage of credit reports
subject to two requirements. First, the information in the
credit report must be substantially job-related, where the
applicant or promotion candidate would have access to money,
other assets, trade secrets, as defined, or other confidential
information. Second, the position sought is either managerial,
in the state Department of Justice, a sworn peace officer, or
the information is required by law.
Prior Legislation : Last year, the Legislature passed a similar
measure, AB 943 (Mendoza), which was substantially similar to
this bill. AB 943 was vetoed by the Governor, who 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.
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
been able to find any evidence of increased litigation over
credit checks for employment purposes in states such as
Washington. 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.
AB 2918 (Lieber) of 2008 amended the CCRAA to prohibit, except
as specified, the user of a consumer credit report from
procuring a consumer credit report for employment purposes
unless the report is either substantially job-related, as
defined, or required by law to be disclosed. AB 2918 was vetoed
by the Governor.
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SB 986 (Escutia) of 2005 required that when a consumer credit
report or investigative credit report is used for employment
purposes, the information must be directly related to the skills
necessary to perform the job. SB 986 was never heard in policy
committee.
REGISTERED SUPPORT / OPPOSITION (from Senate Judiciary Committee
Analysis) :
Support
American Civil Liberties Union
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)
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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 & 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
Analysis Prepared by : Leora Gershenzon / JUD. / (916) 319-2334