BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 22 (Mendoza)
As Amended May 12, 2011
Hearing Date: June 28, 2011
Fiscal: Yes
Urgency: No
TW
SUBJECT
Employment: Credit Reports
DESCRIPTION
This bill would prohibit the use of consumer credit reports for
employment purposes, 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 position in
the state Department of Justice, sworn peace officer or other
law enforcement position, or the credit report information is
already required by law. This bill would also exempt financial
institutions already subject to existing privacy requirements
under federal law.
BACKGROUND
The 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.
Sec. 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 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
(more)
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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.
Federal law, the Gramm-Leach-Bliley Act (GLB), prohibits a
financial institution 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 institution's specified
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. Sec. 6801 et seq.)
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'
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honesty and integrity, among other traits. This bill, sponsored
by the California Labor Federation, would prohibit the use of
credit checks for employment except under specified
circumstances. This bill is substantially similar to AB 2918
(Lieber, 2008), AB 943 (Mendoza, 2009), and AB 482 (Mendoza,
2010), which were vetoed by Governor Schwarzenegger.
This bill was heard by the Senate Labor and Industrial Relations
Committee on June 22, 2011 and approved by a vote of 5-1.
CHANGES TO EXISTING LAW
Existing law requires, prior to requesting a consumer credit
report for employment purposes, the user of the report to
provide notice to the person involved. The notice must inform
the person that a report will be used and the source of the
report, and must contain a box that the person may check off to
receive a copy of the credit report. If the consumer indicates
that he or she wishes to receive a copy of the credit report,
the user must request that a copy be provided to the person when
the user requests its copy from the credit reporting agency; and
the report must be provided to the user and the person
contemporaneously at no charge to the person. (Civ. Code Sec.
1785.20.5.)
Existing federal law , GLB, prohibits, except as specified, a
financial institution from disclosing a consumer's nonpublic
personal information to a nonaffiliated third party. (15 U.S.C.
Sec. 6801 et seq.)
Existing federal law , the National Labor Relations Act, defines
"supervisor" to mean any individual having authority, in the
interest of the employer, to hire, transfer, suspend, lay off,
recall, promote, discharge, assign, reward, or discipline other
employees, or responsibly to direct them, or to adjust their
grievances, or effectively to recommend such action, if in
connection with the foregoing the exercise of such authority is
not of a merely routine or clerical nature, but requires the use
of independent judgment. (29 U.S.C. Sec. 152(11).)
This bill would prohibit an employer from obtaining a consumer
credit report for employment purposes unless the information in
the report is (1) substantially job related, meaning that the
position has access to money, other assets, or confidential
information; and (2) the position is a managerial position, a
position in the state Department of Justice, that of a sworn
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peace office 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.
This bill would provide that its provisions do not apply to a
person or business subject to GLB, if the person or business is
subject to compliance oversight by a state or federal regulatory
agency with respect to statutes and regulations implementing
GLB.
This bill would use the definition of "supervisor" contained in
the National Labor Relations Act to define "managerial
position."
COMMENT
1. Stated need for the bill
The author writes:
Sixty percent of U.S. employers currently conduct credit
checks on job applicants, according to a 2009 survey conducted
by the Society for Human Resource Management. Nearly 80
percent of credit reports contain some sort of error in the
information they present (US Pirg, 2004). The Equal
Employment Opportunity Commission has expressed concern that
the use of credit reports in employment may have a disparate
impact against people of color. A Freddie Mac study says 48
percent of blacks and 34 percent of Latinos have bad credit,
indicating races and ethnicities traditionally discriminated
against may face further discrimination in the hiring process.
In addition, approximately one-third of people earning less
than $45,000 have bad credit, according to a Freddie Mac
study. Lastly, credit history is not an indicator of job
performance, according to a study presented to the American
Psychological Society.
The California Labor Federation, the sponsor of this bill,
writes:
Credit scores are not only misleading indicators of likely job
performance, they are problematic on a number of levels.
First, they are, according to Consumer Action, "very
imprecise, crude arbitrary measures, riddled with errors ?
Ýand] are particularly misleading in a time of high
unemployment." In addition, evidence suggests that the
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practice discriminates against the low-income, people of color
and others disproportionately impacted by the economic crisis.
. . . Employers possess a wide array of tools at their
disposal to more accurately assess potential workers,
including background checks and the interview process. In
addition, AB 22 does allow credit scoring when relevant to the
position in question.
2.Potential discriminatory implications of employer credit
checks
In an effort to curb unwarranted credit checks in the employment
context, this bill would prohibit an employer from obtaining a
credit check for employment purposes unless the information in
the report is: (1) substantially job related, meaning that the
position has access to money, other assets, or confidential
information; and (2) the position is a managerial position, a
position in the state Department of Justice, that of a sworn
peace office 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.
Under Title VII of the Civil Rights Act of 1964 (Title VII),
employers are prohibited from discriminating on the basis of
race, color, religion, sex, or national origin. It is unlawful
to discriminate against any individual in regard to recruiting,
hiring and promotion, transfer, work assignments, performance
measurements, the work environment, job training, discipline and
discharge, wages and benefits, or any other term, condition, or
privilege of employment. Title VII prohibits not only
intentional discrimination, but also neutral job policies that
disproportionately affect persons of a certain race or color and
that are not related to the job and the needs of the business.
(See Griggs v. Duke Power Co., (1971) 401 U.S. 424, 431 ("The
Act proscribes not only overt discrimination but also practices
that are fair in form, but discriminatory in operation.").)
Accordingly, if an employment practice has a disparate impact
based on a protected characteristic, the practice is unlawful
unless the employer can establish that it is job related and
consistent with business necessity. (42 U.S.C. Sec.
2000e-(k)(1)(A)(i).)
The U.S. Equal Employment Opportunity Commission (EEOC) has had
a longstanding position that credit checks can have an unlawful
disparate impact in violation of Title VII's prohibitions
against race and national origin discrimination. (See EEOC Dec.
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72-1176 (1972) (bank policy of using credit information to
evaluate potential employee was unlawful in the absence of
business justification); EEOC Dec. 74-02 (1973) (manufacturing
company's policy of looking at applicants' financial status was
unlawful in absence of business justification).) In 2009,
before the Hawaii State Senate Committee on Labor, the Acting
Chairman of the EEOC outlined why, in most cases, employers'
credit check policies will be problematic under Title VII's
disparate impact standard. "First, credit reports are often
inaccurate and may include errors that are serious enough for an
individual to be denied a loan or employment. Second, negative
credit information may not account for individual circumstances
that could have been beyond an individual's control, such as
developing a disability, divorce, death of a spouse, illness of
a family member, identity theft, or employer downsizing.
Finally, even assuming that a credit report is an accurate
account of an individual's credit history, there is little, if
any evidence that credit information will generally be
predictive of successful job performance (citations omitted)."
(See U.S. EEOC, Office of the Chairman, Testimony Before the
Hawaii State Senate Committee on Labor, Thursday, March 19,
2009.)
As these credit checks become more commonplace, the concern over
the disparate impact of employer credit check policies continues
to grow, particularly during this economic climate where
unemployment rates have skyrocketed and more individuals are
struggling financially. The California Nurses Association, in
support of this bill, argues that "Ýw]orking families in
California are facing the worst economic crisis since the Great
Depression." The California National Organization for Women, in
support of this bill, argues that "Ýu]nemployment is at a
twenty-five year high, 500 families lose their homes to
foreclosure each day, and those who have jobs are facing
furloughs and wage cuts. . . . 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. 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.
Further, the American Civil Liberties Union, in support of this
bill writes:
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Another concern about the use of credit reports in the
employment context is the rise in identity theft, data
breaches, and the improper sale of credit information. These
factors, as well as outright negligence by the credit
reporting agencies, can result in damaging information
appearing on an individual's credit report - through no fault
of their own.
3.Arguments in opposition
In opposition to this bill, a coalition of business interests
contend 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. Further, employees in many
industries, such as in-home care, hospitals, restaurants, and
retail stores, have access to assets and financial information
of their employers and the public. The National Federation of
Independent Business 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."
In preparation for introducing AB 482 (Mendoza, 2010), the
author conducted research to determine whether increased
litigation has been a problem in other states where similar laws
have been enacted. However, the author did not find any
evidence of increased litigation over credit checks for
employment purposes in states such as Washington and Hawaii.
Additionally, the opponents have not provided any evidence of
such an issue. Thus, there appears to be no basis for the
contention that this bill would significantly increase exposure
for potential litigation over the use of credit checks.
Unlike AB 943 (Mendoza, 2009), this bill does not include an
exemption for city and county employees. The opposition raises
concerns that "Ým]any public sector employees have the authority
and obligation to enforce laws, handle money, deal with public
works bid documents, grant permits and make recommendations or
decisions that can have profound impact on the lives of others.
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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." In response, the author
argues that these concerns are the same as argued by private
employers, which are unfounded because there is little, if any,
evidence that credit information will generally be predictive of
successful job performance.
4.Governor Schwarzenegger's vetoes of AB 943 and AB 482
This bill is substantially similar to the enrolled version of AB
943 (Mendoza, 2009). In vetoing AB 943, Governor Schwarzenegger
stated:
This bill would prohibit the use of consumer credit reports
for employment purposes unless the information is either
substantially job related, as defined, or required by law to
be disclosed to or obtained by the user of the report.
This bill is similar to legislation I vetoed last year ÝAB
2918 (Lieber, 2008)] 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 last year's bill, this measure would also
significantly increase the exposure for potential litigation
over the use of credit checks.
This bill is substantially similar to the enrolled version of AB
482 (Mendoza, 2010). In vetoing AB 482, Governor Schwarzenegger
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 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.
Support : American Civil Liberties Union; American Federation of
State, County and Municipal Employees, AFL-CIO; California
Coalition for Women Prisoners; California Conference Board of
the Amalgamated Transit Union; California Conference of
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Machinists; California National Organization for Women;
California Nurses Association; California Reinvestment
Coalition; California Teamsters Public Affairs Council;
Communications Workers of America; Consumer Action; Consumer
Attorneys of California; Dmos; Engineers and Scientists of
California; International Alliance of Theatrical Stage
Employees, Moving Picture Technicians, Artists, and Allied
Crafts of the United States, Its Territories, and Canada,
AFL-CIO, CLC; International Longshore & Warehouse Union; Legal
Services for Prisoners with Children; Los Angeles County
Democratic Party; National Consumer Law Center; Privacy Rights
Clearinghouse; Professional & Technical Engineers, Local 21;
SEIU Local 1000; UNITE HERE!; United Food and Commercial Workers
Union, Western States Council
Opposition : Apartment Association of Greater Los Angeles;
Apartment Association of Orange County; Associated General
Contractors; Association of California Water Agencies;
California Apartment Association; California Association of
Health Services at Home; California Association of Joint Powers
Authorities; California Association of Licensed Investigators;
California Association of Realtors; California Automotive
Wholesalers' Association; California Chamber of Commerce;
California Employment Law Council; California Framing
Contractors Association; California Grocers Association;
California Independent Grocers Association; California New Car
Dealers Association; California Restaurant Association;
California Retailers Association; California Special Districts
Association; California State Association of Counties;
CoreLogic; Experian; Flasher Barricade Association; Garden Grove
Chamber of Commerce; Greater Corona Valley Chamber of Commerce;
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; Southwest California
Legislative Council; TechAmerica; TransUnion
HISTORY
Source : California Labor Federation
Related Pending Legislation : None Known
Prior Legislation :
AB 482 (Mendoza, 2010) See Background.
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AB 943 (Mendoza, 2009) See Background.
AB 2918 (Lieber, 2008) See Background.
SB 986 (Escutia, 2005) 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. The bill was referred to the Senate Judiciary
Committee.
Prior Vote :
Senate Labor and Industrial Relations Committee (Ayes 5, Noes 1)
Assembly Floor (Ayes 45, Noes 29)
Assembly Appropriations Committee (Ayes 11, Noes 6)
Assembly Labor and Employment Committee (Ayes 5, Noes 1)
Assembly Judiciary Committee (Ayes 6, Noes 4)
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