BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                   AB 943|
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                                 THIRD READING


          Bill No:  AB 943
          Author:   Mendoza (D), et al
          Amended:  7/9/09 in Senate
          Vote:     21

           
           SEN. LABOR & INDUSTRIAL RELATIONS COMM.  :  4-2, 6/25/09
          AYES:  DeSaulnier, Ducheny, Leno, Yee
          NOES:  Wyland, Hollingsworth

           SENATE JUDICIARY COMMITTEE  :  3-2, 7/7/09
          AYES:  Corbett, Florez, Leno
          NOES:  Harman, Walters

           SENATE APPROPRIATIONS COMMITTEE  :  8-5, 8/24/09
          AYES:  Kehoe, Corbett, Hancock, Leno, Oropeza, Price, Wolk,  
            Yee
          NOES:  Cox, Denham, Runner, Walters, Wyland

           ASSEMBLY FLOOR  :  49-30, 5/28/09 - See last page for vote


           SUBJECT  :    Employment:  credit reports

           SOURCE  :     Author


           DIGEST  :    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, or confidential  
          information.  Second, the position sought is either  
                                                           CONTINUED





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          managerial, a sworn peace officer, a position in a city or  
          county government, or the information is already required  
          by law.  This bill also exempts financial institutions  
          already subject to existing privacy requirements under  
          federal law.

           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  
          (a) 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  
          Section 178.3)

          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. Sections 1681 et seq.)  The FCRA  
          places restrictions on an employers' 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.

          2.Obtain prior written authorization from the applicant.








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          3.Certify to the CRA that the employee 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 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. Section  
            1681 et seq.)

          The existing California Consumer Credit Reporting Agencies  
          Act (CCRAA), 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  
          Section 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  
          reinvestigate disputed information without charge.

          The existing federal Gramm-Leach-Bliley Act (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 polices 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 rights to  
          opt-out.  (15 U.S.C. Section 6801 et seq.)

          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 position in the Department of Justice, a  
                managerial position, a position in a city, county, or  
                both city and county, 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 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.

           Comments
           
          Currently, 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 y ears, the EEOC has  
          reiterated its concern that credit check policies can have  







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          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 prohibits an employer, with the  
          exception of certain financial institutions, from obtaining  
          a consumer credit report for employment purposes, except as  
          specified.

           Prior Legislation

          AB 2918 (Lieber), 2007-08 Session  .  Similar to this bill,  
          AB 2918 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.  AB 2918 was vetoed  
          by the Governor, and in his veto message the Governor  
          states:

            "This bill would significantly increase businesses'  
            exposure to civil actions over the use of credit  
            checks.  Further, the bill would increase  
            administrative costs to those employers who must  
            legitimately use credit reports as a screening tool by  
            requiring that the employer first abide by its onerous  
            requirements.  California employers and businesses have  
            inherent needs to obtain information about applicants  
            for employment.  This bill would become a new employer  
            obstacle to the use of available information needed to  
            make hiring decisions."

           AB 986 (Escutia), 2005-06 Session  .  AB 986 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.  This bill was not pursued by the author and it was  
          never heard in a policy committee.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    







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          Local:  No

           SUPPORT  :   (Verified  8/26/09)

          All of Us or None
          American Civil Liberties Union 
          American Federation of State, County and Municipal  
            Employees, AFL-CIO
          California Alliance for Retired Americans
          California Applicants' Attorneys Association
          California Commission on the Status of Women
          California Conference Board of the Amalgamated Transit  
            Union
          California Conference of Machinists
          California Immigrant Law Project
          California Immigrant Policy Center
          California Labor Federation, AFL-CIO
          California NOW
          CalPIRG
          California Professional Firefighters
          California Rural Legal Assistance Foundation
          California Teamsters Public Affairs Council
          Coalition for Humane Immigrant Rights of Los Angeles
          Congress of California Seniors
          Consumer Action
          Consumer Federation of California
          Consumers for Auto Reliability and Safety
          Consumers Union
          Engineers and Scientists of California 
          International Longshore & Warehouse Union
          Legal Services for Prisoners with Children 
          National Association for the Advancement of Colored People,  
            California State Conference
          National Employment Law Project
          National Lawyers Guild, Labor & Employment Committee
          Older Women's League of California
          Privacy Rights Clearinghouse
          Professional & Technical Engineers, Local 21
          Service Employees International Union 
          Strategic Committee of Public Employees, LIUNA California  
            Labor Federation, AFL-CIO
          UNITE HERE!
          United Food and Commercial Workers Union, Western States  
            Council







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          United Transportation Union
          The Women's Foundation of California

           OPPOSITION  :    (Verified  8/26/09)

          Acxiom
          Apartment Association, California Southern Cities
          Apartment Association of Greater Los Angeles
          Apartment Association of Orange County
          Associated General Contractors
          Association of California Insurance Companies
          Association of California Water Agencies 
          California Apartment Association 
          California Association of Collectors
          California Association of Health Services at Home
          California Association of Licensed Investigators
          California Chamber of Commerce
          California Chapter, American Fence Contractors' Association
          California Employment Law Council
          California Fence Contractors' Association
          California Grocers Association
          California Hospital Association
          California Hotel & Lodging Association
          California Independent Grocers Association
          California Manufacturers & Technology Association
          California Restaurant Association
          California Retailers Association
          California Society of Association Executives
          Consumer Data Industry Association
          Department of Industrial Relations
          Engineering Contractors' Association
          Experion
          Flasher/Barricade Association
          Garda, Inc.
          International Franchise Association
          Irvine Chamber
          Life Technologies Corporation
          Long Beach Area Chamber of Commerce
          Marin Builders' Association
          National Armored Car Association
          National Federation of Independent Business
          Reed Elsevier
          Santa Barbara Rental Property Association
          Southwest California Legislative Council







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          TransUnion

           ARGUMENTS IN SUPPORT  :    Proponents of this bill argue that  
          working families in California are facing the worst  
          economic crisis since the Great Depression.  Unemployment  
          in California is now at 11 percent while at the same time  
          Californians' credit histories are deteriorating due to the  
          economic downturn and the foreclosure crisis.  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 Humane  
          Resource Management has reported that 43 percent of U.S.  
          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 EEOC 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 would  
          provide an important worker protection without placing  
          unreasonable restrictions on employers.

           ARGUMENTS IN OPPOSITION  :    According to opponents of this  
          bill, consumer credit reports provide valuable information  
          to employers in decision-making processes including the  







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          hiring or promotion of an individual.  Opponents argue that  
          employers work hard to create working environments that are  
          safe and secure, and believe that this bill inappropriately  
          limits the use of a consumer credit report and does so at  
          the expense of the health, safety, and financial security  
          of California business and their customers.

          Opponents argue the need to use information from a credit  
          report when making employment decisions where the potential  
          employee would be required to perform a wide variety of  
          duties that may include access to cash, other assets, or  
          confidential information.  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.  The rental housing  
          industry argues that this bill will serve to the detriment  
          of all tenants and landlords because giving employees, who  
          have not been property screened with the use of a consumer  
          credit report, access to confidential financial information  
          of tenants and prospective tenants could put that  
          information at risk.  

          In addition, opponents argue, by restricting access to  
          consumer credit report information this bill may expose the  
          business' customers and employees to increased risk such as  
          identity, financial and asset theft.  Opponents state that  
          employee theft is a growing problem and cite Federal Bureau  
          of Investigation (FBI) data that demonstrates that employee  
          theft is the fastest growing crime in the United States and  
          is expected to increase by 15 percent annually.  While a  
          person's credit history by itself is not predictive of  
          potential theft, opponents argue that access to credit  
          information can be used to evaluate an applicant's personal  
          responsibility and organization skills by their ability to  
          pay their bills on time and can reveal patterns that may  
          present an unreasonable risk to businesses.

          Lastly, some opponents believe that the exemptions in this  
          bill will create a new area of confusion and puts employers  
          at risk of inadvertently violating the law and subjects  
          them to employment litigation.  Opponents also fear that  







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          this bill will lead to an increase in "retaliation" claims  
          by individuals claiming that they were not hired or  
          promoted because he or she failed to authorize the ordering  
          of a credit report.  Overall, opponents believe that for  
          any employer risk created by this bill represents a major  
          liability that discourages business growth in California.  
           

           ASSEMBLY FLOOR  : 
          AYES:  Ammiano, Arambula, Beall, Block, Blumenfield,  
            Brownley, Buchanan, Caballero, Charles Calderon, Carter,  
            Chesbro, Coto, Davis, De La Torre, De Leon, Eng, Evans,  
            Feuer, Fong, Fuentes, Furutani, Galgiani, Hall, Hayashi,  
            Hernandez, Hill, Huffman, Jones, Krekorian, Lieu, Bonnie  
            Lowenthal, Ma, Mendoza, Monning, Nava, John A. Perez, V.  
            Manuel Perez, Portantino, Price, Ruskin, Salas, Saldana,  
            Skinner, Solorio, Swanson, Torlakson, Torrico, Yamada,  
            Bass
          NOES:  Adams, Anderson, Bill Berryhill, Tom Berryhill,  
            Blakeslee, Conway, Cook, DeVore, Duvall, Emmerson,  
            Fletcher, Fuller, Gaines, Garrick, Gilmore, Hagman,  
            Harkey, Huber, Jeffries, Knight, Logue, Miller, Nestande,  
            Niello, Nielsen, Silva, Smyth, Audra Strickland, Tran,  
            Villines
          NO VOTE RECORDED:  Torres


          AGB:cm  8/26/09   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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