BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: June 22, 2011 20011-2012 Regular
Session
Consultant: Alma Perez Fiscal:Yes
Urgency: No
Bill No: AB 22
Author: Mendoza
Version: As amended May 12, 2011
SUBJECT
Employment: credit reports
KEY ISSUE
Should employers be banned from using information found in
consumer credit reports to help make employment decisions?
PURPOSE
To prohibit the use of consumer credit reports for employment
purposes, except as specified.
ANALYSIS
Existing federal and state law limits the use of credit
information for employment purposes. "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 §1785.3)
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. §1681 et seq.) The FCRA regulates how employers may use
consumer reports, which 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 law
governing background checks. If information from a credit
report is used for employment purposes, the FCRA requires that
the employer:
§ Make a clear and conspicuous written disclosure to the
applicant before the report is obtained, as specified;
§ Obtain prior written authorization from the applicant;
§ Certify to the Consumer Reporting Agency that the
employer 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.
§ 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 also 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. §1681 et seq.)
The California Consumer Credit Reporting Agencies Act (CCRAA) ,
which is the state's counterpart to the FCRA, generally
regulates consumer credit reporting agencies. 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 the files pertaining to
him or her that the agency maintains at the time of the request.
(Civil Code §1785.1 et seq.) The CCRAA allows consumers to
dispute inaccurate information 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
Hearing Date: June 22, 2011 AB 22
Consultant: Alma Perez Page 2
Senate Committee on Labor and Industrial Relations
privacy policies 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 right to
opt-out. (15 U.S.C. §6801 et seq.)
This Bill would prohibit an employer from obtaining a consumer
credit report for employment purposes, except as specified.
Specifically, this bill would:
1. Prohibit 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
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. A sworn peace 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
2. Specify 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
Hearing Date: June 22, 2011 AB 22
Consultant: Alma Perez Page 3
Senate Committee on Labor and Industrial Relations
1. Need for this bill?
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 years the EEOC has reiterated its
concerns that credit check policies can have 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 would prohibit an
employer, with the exception of certain financial
institutions, from obtaining a consumer credit report for
employment purposes, except as specified.
This bill is substantially similar to bills approved by this
Committee in each of the past three years that were ultimately
vetoed by Governor Schwarzenegger. This bill would 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 is
either managerial, a sworn peace officer, or the information
is already required to be disclosed by law or to be obtained
by the employer. This bill would also exempt financial
institutions already subject to existing privacy requirements
under federal law.
Hearing Date: June 22, 2011 AB 22
Consultant: Alma Perez Page 4
Senate Committee on Labor and Industrial Relations
2. Consumer Credit Reporting Legislation in Other States and at
the Federal Level :
In 2007, Washington State enacted a law (Chapter 93, Laws of
2007) that prohibits a person from procuring a consumer report
for employment purposes where any information contained in the
report bears on the consumer's credit worthiness, credit
standing, or credit capacity, unless the information is either
substantially job-related and the employer's reasons for the
use of such information are disclosed to the consumer in
writing, or is required by law.
In July 2009, Hawaii became the second state behind Washington
to limit the use of employment credit history or credit
reports unless it is directly related to a bona fide
occupations qualification or falls under another exception.
On May 29, 2010, Oregon's Governor signed legislation (SB
1045) that prohibits employers from using credit history in
making hiring, discharge, promotion, and compensation
decisions unless the applicant or employee is given advanced
written notice and the credit history is substantially related
to the position sought.
Also in 2010, Illinois passed HB 4658, which prohibits
consumer reports for employment purposes unless credit history
is an established bona fide occupational requirement, as
defined.
On April 12, 2011, Maryland's Governor signed into law the
Maryland Job Applicant Fairness Act (Chapter #29), which
prohibits employers from using an applicant's or employee's
credit report in determining whether to deny employment,
discharge the employee, or determine compensation or the
terms, conditions, or privileges of employment.
Finally, on June 8th, 2011, Connecticut approved SB 361 which
bans the use of credit reports in hiring and promotions in
certain situations by certain employers. The bill now goes to
the Governor for a signature.
Hearing Date: June 22, 2011 AB 22
Consultant: Alma Perez Page 5
Senate Committee on Labor and Industrial Relations
At the federal level, Representative Steve Cohen and Senator
Diane Feinstein have both introduced legislation over the past
couple of years in efforts to limit the use of consumer credit
reports for employment purposes. This year, H.R. 321: Equal
Employment for All Act, introduced by Representative Cohen,
would amend the Fair Credit Reporting Act to prohibit the use
of consumer credit checks against prospective and current
employees for the purpose of making adverse employment
decisions. H.R. 321 is currently pending consideration in the
House Subcommittee on Insurance, Housing and Community
Opportunity.
3. Double Referral to the Senate Judiciary Committee:
If approved by the Senate Labor and Industrial Relations
Committee, this bill will go to the Senate Judiciary
Committee, per Senate Rules.
4. Proponent Arguments :
Proponents of the measure argue that working families in
California are facing the worst economic crisis since the
Great Depression. Unemployment is at a twenty-five year high,
and those who have jobs are facing furloughs and wage cuts.
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. The author believes this bill is needed to ensure
that job opportunities will not be unfairly denied to those
hit hardest by the current economic crisis.
According to proponents, in the past, generally only banks and
financial service companies routinely ran credit checks on
potential employees. But 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%. In addition, the author states that the Equal
Employment Opportunity Commission has expressed concern that
Hearing Date: June 22, 2011 AB 22
Consultant: Alma Perez Page 6
Senate Committee on Labor and Industrial Relations
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. Proponents argue that this is
unfair, as there is no evidence of any correlation between
credit score and job performance.
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 believes this bill would provide an important
worker protection without placing unreasonable restrictions on
employers.
5. Opponent Arguments :
According to opponents of the bill, employers strive to
recruit and retain the best employees who they trust and will
help grow their businesses. To this end, opponents argue,
consumer credit reports provide important insight into one
aspect of a potential employee's ability to handle
responsibility for cash, other assets, and personal
information while at the same time allowing employers to
verify an applicant's employment history.
Opponents argue 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. Furthermore, opponents argue
that employee theft is a growing problem. Opponents contend
that the National Retail Security Survey in 2009 confirmed
that employee theft was responsible for over 40% of retail
employer loss nationwide, amounting to approximately $15.9
billion. Opponents believe that an employee with high consumer
debt who handles cash or assets may be more likely to steal.
According to opponents, this bill prohibits employers from
performing their due diligence in screening applicants, thus
Hearing Date: June 22, 2011 AB 22
Consultant: Alma Perez Page 7
Senate Committee on Labor and Industrial Relations
subjecting employers to a greater risk of inadvertently
violating the law or being subject to frivolous employment
litigation. In addition, opponents believe that by
restricting access to important information found in consumer
credit reports; this bill may expose the business' customers
and employees to increased risks such as identity, financial,
and asset theft. 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.
Several associations representing local government oppose this
bill unless amended to restore an exemption for city and
county positions from the general prohibition against use of
credit reports-a provision that was amended out of the bill on
March 8, 2011. According to this group of opponents, counties
and cities use credit reports in pre-employment screening for
employees that work in police, sheriffs' and various personnel
and fiscal offices and have access to confidential
information. They believe that the targeted use of credit
reports is critical to hiring a dependable public workforce
with the responsibility to handle taxpayer information and
money.
Overall, opponents of the measure argue that this bill unduly
restricts the ability of businesses to use all legally
available information in employment decisions. With regard to
similar legislation in other states, opponents argue that such
legislation is not nearly as restrictive as this bill.
6. Prior Legislation :
AB 482 (Mendoza) of 2010: Vetoed by the Governor
This bill is similar to AB 482 from 2010, which would have
prohibited employers from using a consumer credit report for
employment purposes, with certain exceptions. In his veto
message the Governor stated, "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
Hearing Date: June 22, 2011 AB 22
Consultant: Alma Perez Page 8
Senate Committee on Labor and Industrial Relations
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."
AB 943 (Mendoza) of 2009: Vetoed by the Governor
This bill is also similar to AB 943 from 2009, which would
have prohibited the use of consumer credit reports for
employment purposes, as specified. AB 943 was also vetoed by
the Governor.
AB 2918 (Lieber) of 2008: Vetoed by the Governor
AB 2918 would have prohibited, except as specified, a user
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.
SB 986 (Escutia) of 2005: Bill Withdrawn by Author
SB 986 would have required 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. The bill was never heard in policy
committee.
SUPPORT
American Civil Liberties Union
American Federation of State, County and Municipal Employees,
AFL-CIO
California Coalition for Women Prisoners
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
California Nurses Association
California Reinvestment Coalition
California Teamsters Public Affairs Council
Communications Workers of America
Hearing Date: June 22, 2011 AB 22
Consultant: Alma Perez Page 9
Senate Committee on Labor and Industrial Relations
Consumer Action
Consumer Attorneys of California
Consumer Federation of California
Demos
East Bay Community Law Center
Engineers and Scientists of California
International Alliance of Theatrical Stage Employees
International Longshore & Warehouse Union
Legal Services for Prisoners with Children
National Consumer Law Center
National Employment Law Project
National Organization for Women (CA NOW)
Organization of SMUD Employees
Privacy Rights Clearinghouse
Professional & Technical Engineers, Local 21
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
Service Employees International InionLos Angeles County
Democratic Party
The Glendale City Employees Association
UNITE HERE!
United Food and Commercial Workers Union, Western States Council
OPPOSITION
Apartment Association of Greater Los Angeles
Apartment Association of Orange County
Apartment Association, California Southern Cities, Inc.
Associated General Contractors
Association of California Healthcare Districts
Association of California Water Agencies
California Apartment Association
California Association of Health Services at Home
California Association of Joint Powers Authorities (CAJPA)
California Association of Licensed Investigators
California Association of Realtors
California Automotive Wholesalers Association
California Chamber of Commerce
California Chamber of the American Fence Association
California Employment Law Council
California Framing Contractors Association
Hearing Date: June 22, 2011 AB 22
Consultant: Alma Perez Page 10
Senate Committee on Labor and Industrial Relations
California Grocers Association
California Hospital Association
California Independent Grocers Association
California Manufacturers & Technology Association
California New Car Dealers Association
California Restaurant Association
California Retailers Association
California Special Districts Association
California State Association of Counties
CoreLogic
County Welfare Directors Association of California
Engineering Contractors' Association
Experian
Flasher Barricade Association
Garden Grove Chamber of Commerce
League of California Cities
Marin Builders' Association
Nation Federation of Independent Business
Regional Council of Rural Counties
San Diego County Apartment Association
Santa Barbara Rental Property Association
Southwest California Legislative Council
TechAmerica
The Greater Corona Valley Chamber of Commerce
Trans Union
Hearing Date: June 22, 2011 AB 22
Consultant: Alma Perez Page 11
Senate Committee on Labor and Industrial Relations