BILL ANALYSIS Ó
AB 22
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Date of Hearing: April 13, 2011
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 22 (Mendoza) - As Amended: March 8, 2011
SUBJECT : Employment: credit reports.
SUMMARY : Prohibits the use of consumer credit reports for
employment purposes, except as specified. Specifically, this
bill :
1)Prohibits an employer from using a consumer report for
employment purposes unless:
a) The information contained in the report is substantially
job-related, meaning the position has access to money,
other assets, or confidential information; and
b) The position is any of the following:
i) A managerial position.
ii) A position in the state Department of Justice.
iii) That of a sworn police 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.
1)Specifies 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.
FISCAL EFFECT : Unknown
COMMENTS : 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
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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. If an adverse decision is made based upon
the background check, the employer must provide the applicant
with 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 applicant 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. (Civ. Code Sec. 1785.1 et seq.)
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. (Civ. Code Sec. 1786 et seq.)
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.
ARGUMENTS IN SUPPORT :
According to the author, this legislation is necessary because
the unemployment rate was close to 12.4 percent during 2010 and
Californians' credit histories are deteriorating due to the
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economic downturn and the foreclosure crisis.
The author states that, according to the Society of Human
Resource Management, 60 percent of employers conduct credit
checks on job applicants. However, the author contends that
there is no correlation between credit history and job
performance, according to a study presented to the American
Psychological Society. Therefore, this bill will ensure that
job opportunities will not be unfairly denied to those hit
hardest by the current economic crisis.
Similarly, supporters state that current law permits employers
to conduct largely unregulated credit checks in prospective
workers. While there may be a need for certain sensitive
positions to warrant such intrusive research, simply allowing
all employers access to this information is excessive and
particularly unfair in the midst of such a severe economic
downturn. Moreover, supporters contend that employers possess a
wide array of tools at their disposal to more accurately assess
potential workers, including background checks and the interview
process.
ARGUMENTS IN OPPOSITION :
In opposition to the bill, a coalition of business interests
contends 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 resulting from an irresponsibility with regard to, or
inability to, handle personal financial commitments. The
opposition further asserts 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. This risk is compounded by the fact that, in most
situations, employers are liable for the actions of employees in
the performance of their job duties, so an employee may take
actions that bring an unacceptable level of liability on their
employer.
Opponents state that the National Retail Security Survey
released in 2009 also confirmed that employee theft was
responsible for over 40 percent of retail employer loss
nationwide, amounting to approximately $15.9 billion. Moreover,
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the U.S. Chamber of Commerce estimates that one-third of all
corporate bankruptcies are a direct result of employee theft.
Accordingly, all employers need the ability to obtain and review
the objective information provided in an employee credit report.
Opponents also state that, while other states have recently
enacted legislation limiting the use of employee credit reports,
such legislation is not nearly as restrictive as this bill. The
legislation passed in these other states allows employee credit
reports to be utilized for any position where a credit report is
"substantially job related" and/or is a "bona fide occupational"
requirement. Conversely, the opponents note that this bill
limits the use of credit reports to only "managerial positions"
where credit history is "substantially job related, " thus
ignoring the other numerous non-managerial positions in the
workforce where employees have unsupervised access to employers'
and consumers' financial information, trade secret information,
and assets.
In addition, several public sector employers oppose this bill
unless amended to exclude them. Among other things, they
contend that many public sector employees have access to highly
sensitive information, evidence, cash, assets, handle
confidential information or have the ability to grant permits,
accept or determine winning bids, and similar activity. They
argue that these and other responsibilities make it imperative
that public sector employers be allowed to conduct reasonable
and appropriate background checks as part of the hiring process,
including the use of credit reports.
PRIOR LEGISLATION :
This measure is similar to AB 482 (Mendoza) from 2010. AB 482
was vetoed by Governor Schwarzenegger, who stated the following
in his veto message:
"This bill is similar to legislation I have vetoed for the
last two years 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 the last two bills, this measure would
also significantly increase the exposure for potential
litigation over the use of credit checks."
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This measure is also similar to AB 943 (Mendoza) from 2009. AB
943 was also vetoed by Governor Schwarzenegger.
This measure is very similar, but not identical to AB 2918
(Lieber) from 2008. AB 2918 was vetoed by Governor
Schwarzenegger.
SB 986 (Escutia) from 2005 would have required that when a
consumer credit report or investigative credit report is used
for employment purposes, the information be directly related to
the skills necessary to perform the job. SB 986 was never heard
in policy committee.
REGISTERED SUPPORT / OPPOSITION :
Support
American Civil Liberties Union
American Federation of State, County and Municipal Employees
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 (Sponsor)
California National Organization for Women
California Nurses Association/National Nurses Organizing
Committee
California Teamsters Public Affairs Council
Consumer Action
Consumer Attorneys of California
Consumer Federation of California
East Bay Community Law Center
Engineers and Scientists of California
IATSE, Local 80
International Longshore & Warehouse Union
National Consumer Law Center
Privacy Rights Clearhouse
Professional & Technical Engineers, Local 21
Service Employees International Union, Local 1000
UNITE HERE!
United Food and Commercial Workers, Western States Council
Opposition
Apartment Association of Greater Los Angeles
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Apartment Association of Orange County
Apartment Association, California Southern Cities, Inc.
Associated General Contractors
Association of California Healthcare Districts
Association of California Water Agencies
CalChamber
California Apartment Association
California Association for Health Services at Home
California Association of Joint Powers Authorities
California Association of Licensed Investigators
California Automotive Wholesalers' Association
California Chapter of the American Fence Association
California Employment Law Council
California Fence Contractors' Association
California Framing Contractors Association
California Grocers Association
California Hospital Association
California Independent Grocers Association
California New Car Dealers Association
California Restaurant Association
California Retailers Association
California Special Districts Association
California State Associations of Counties
CoreLogic
Engineering Contractors' Association
Experian
Flasher Barricade Association
League of California Cities
Marin Builders' Association
National Federation of Independent Business
Regional Council of Rural Counties
San Diego County Apartment Association
Santa Barbara Rental Property Association
TechAmerica
TransUnion
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091