BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 943| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 AB 943 Page 2 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. AB 943 Page 3 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: AB 943 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 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 AB 943 Page 5 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 AB 943 Page 6 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 AB 943 Page 7 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 AB 943 Page 8 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 AB 943 Page 9 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 AB 943 Page 10 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 **** END ****