BILL ANALYSIS Ó AB 22 Page 1 ASSEMBLY THIRD READING AB 22 (Mendoza) As Amended May 12, 2011 Majority vote JUDICIARY 6-4 LABOR & EMPLOYMENT 5-1 ----------------------------------------------------------------- |Ayes:|Feuer, Atkins, Dickinson, |Ayes:|Swanson, Alejo, Allen, | | |Huffman, Monning, | |Furutani, Yamada | | |Wieckowski | | | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Wagner, Silva, Huber, |Nays:|Miller | | |Jones | | | | | | | | ----------------------------------------------------------------- APPROPRIATIONS 11-6 ----------------------------------------------------------------- |Ayes:|Fuentes, Blumenfield, | | | | |Bradford, Charles | | | | |Calderon, Campos, Davis, | | | | |Hall, Hill, Lara, | | | | |Mitchell, Solorio | | | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Harkey, Donnelly, Gatto, | | | | |Nielsen, Norby, Wagner | | | | | | | | ----------------------------------------------------------------- SUMMARY : Prohibits, except as specified, the use of consumer credit reports for employment purposes. Specifically, this bill : 1 Prohibits an employer from using a consumer credit report, as defined in Civil Code Section 1785.3(c), 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 or confidential information; and, b) The position of the person for whom the report is sought AB 22 Page 2 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; or, 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 (GLB) (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)Defines, for purposes of this act, the term "managerial position" to mean a position held by a person who has authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibility to direct them or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of this authority is not of a merely routine or clerical nature, but requires the use of independent judgment. FISCAL EFFECT : According to the Assembly Appropriations Committee, minor annual costs (less than $50,000) to the Division of Labor Standards Enforcement within the Department of Industrial Relations to investigate complaints regarding potential violations of the bill's provisions. 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, or confidential information. Second, the position sought must be either managerial, in the state Department of Justice, a sworn peace officer, or one in which the information in the report is required to be disclosed by law or to be obtained by the employer. Finally, this bill AB 22 Page 3 also would exempt financial institutions already subject to existing privacy requirements under federal law. Because the bill requires both criteria to be met in order for a credit report to be used for an employment purpose, its limitation on the use of credit reports is more restrictive than if only one of the two criteria were sufficient to authorize such use. In other words, not only must the information in the credit report rise to the level of "substantially job-related," as defined, but the position sought must also fall into one of the four categories specified by the bill: a peace officer, a position in the Department of Justice, a position where law requires disclosure of the information, and, finally, a "managerial position," defined as a position held by a person who, in the interest of the employer, has certain authority or responsibilities, as specified, that are not merely routine or clerical in nature but that require use of independent judgment. For many years, mainly banks and financial service companies ran routine credit checks on potential employees, but data indicates that employers in other sectors increasingly are including credit checks in the screening process presumably to assess applicants' honesty and integrity, among other traits. According to the sponsor, the California Labor Federation, data shows that in 1998 only 25% of employers researched the credit history of job applicants, but by 2006 that figure had reached 43% and currently stands at 60%. Supporters of the bill, including many labor unions, worker rights advocates, consumer advocates and the American Civil Liberties Union (ACLU), make several arguments for the policy of prohibiting the use of credit reports for employment purposes. First, supporters contend that a person's credit score says nothing about his or her character or ability to do a job effectively and responsibly. Second, they warn that credit reports often contain errors that may seriously impact innocent subjects of those reports. Third, supporters contend that the use of credit reports for employment purposes disproportionately impacts female and minority workers typically concentrated in low-wage jobs. Finally, considering these factors, several proponents assert that it is "particularly unfair" to allow employers to perform credit checks on job applicants "in the midst of such a severe economic downturn." Supporters point to two studies that bolster their contention AB 22 Page 4 that credit reports should not be used for employment purposes because they are too often inaccurate. First, they cite a Texas Department of Insurance study from 2004 that found that 25% of credit reports have errors serious enough to result in the denial of credit to the subject of the report. In addition, supporters cite a 2007 Zogby survey reporting that 37% of people surveyed had found an error in their credit report and half of these respondents indicated that they could not easily fix the mistakes. Proponents also contend that many events outside an individual's control, such as identify theft, data breaches, negligence by credit reporting agencies, and the improper sale of credit information can also result in damaging misinformation appearing on an individual's credit report through no fault of their own. Supporters contend that the use of credit reports for employment purposes disproportionately impacts female and minority workers typically concentrated in low-wage jobs. For example, the same Texas study from 2004 found that the average credit score of African Americans is roughly 10 to 35% lower than whites, while the average score for Latinos is roughly 5 to 25% lower than whites. According to supporters, this evidence suggests that employer policies that potentially exclude workers based on credit reports have a disparate impact on African Americans and Latinos even though these credit reports are rarely job-related. Supporters also note that, for this reason, the Equal Employment Opportunity Commission (EEOC) has expressed concern about the potential racial disparate impact of the use of credit reports for employment purposes. A coalition of credit reporting agencies, business associations, and manufacturing groups strongly oppose this measure. These opponents argue that an employee's credit report can provide valuable information regarding an applicant's overall responsibility, reliability, and integrity, which can help employers reduce future litigation and loss. The coalition contends that these desired employee characteristics are not unique to financial institutions or police officers, but are values that all employers seek when determining whether to hire an applicant. Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334 AB 22 Page 5 FN: 0000612