BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 22
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          ASSEMBLY THIRD READING
          AB 22 (Mendoza) 
          As Amended  May 12, 2011
          Majority vote 

           JUDICIARY           6-4         LABOR & EMPLOYMENT            
          5-1                 
           
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          |Ayes:|Feuer, Atkins, Dickinson, |Ayes:|Swanson, Alejo, Allen,    |
          |     |Huffman, Monning,         |     |Furutani, Yamada          |
          |     |Wieckowski                |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Wagner, Silva, Huber,     |Nays:|Miller                    |
          |     |Jones                     |     |                          |
          |     |                          |     |                          |
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           APPROPRIATIONS      11-6                                        
           
           ----------------------------------------------------------------- 
          |Ayes:|Fuentes, Blumenfield,     |     |                          |
          |     |Bradford, Charles         |     |                          |
          |     |Calderon, Campos, Davis,  |     |                          |
          |     |Hall, Hill, Lara,         |     |                          |
          |     |Mitchell, Solorio         |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Harkey, Donnelly, Gatto,  |     |                          |
          |     |Nielsen, Norby, Wagner    |     |                          |
          |     |                          |     |                          |
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           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 








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               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 








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          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 








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          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 










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