BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 22| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 22 Author: Mendoza (D), et al Amended: 5/12/11 in Assembly Vote: 21 SENATE LABOR & INDUSTRIAL RELATIONS COMM. : 5-1, 6/22/11 AYES: Lieu, DeSaulnier, Leno, Padilla, Yee NOES: Wyland NO VOTE RECORDED: Runner SENATE JUDICIARY COMMITTEE : 3-2, 6/28/11 AYES: Evans, Corbett, Leno NOES: Harman, Blakeslee SENATE APPROPRIATIONS COMMITTEE : 6-2, 8/15/11 AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg NOES: Walters, Emmerson NO VOTE RECORDED: Runner ASSEMBLY FLOOR : 45-29, 5/19/11 - See last page for vote SUBJECT : Employment: credit reports SOURCE : California Labor Federation DIGEST : This bill prohibits an employer, with the exception of certain financial institutions, from obtaining a consumer credit report, as defined, for employment purposes unless the information is (1) substantially job-related, meaning that the position of the person for CONTINUED AB 22 Page 2 whom the report is sought has access to money, other assets, or confidential information, and (2) the position of the person for whom the report is sought is a position in the state Department of Justice, a managerial position, as defined, that of a sworn peace officer 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. 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. 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. 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 CONTINUED AB 22 Page 3 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. 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. 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 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. This bill prohibits an employer from obtaining a consumer credit report for employment purposes, except as specified. Specifically, this bill: 1. Prohibits 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. CONTINUED AB 22 Page 4 B. The position is any of the following: (1) A managerial position. (2) A position in the state Department of Justice. (3) A sworn peace officer or other law enforcement position. (4) 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. 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. Comments 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, CONTINUED AB 22 Page 5 March 19, 2009) This bill prohibits 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 bans 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 also exempts financial institutions already subject to existing privacy requirements under federal law. 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 CONTINUED AB 22 Page 6 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. 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. Prior Legislation AB 482 (Mendoza) of 2009-10 Session, is similar to this bill, which would have prohibited employers from using a consumer credit report for employment purposes, with certain exceptions. This bill was vetoed by Governor Schwarzenegger, 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 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." CONTINUED AB 22 Page 7 AB 943 (Mendoza) of 2009-10 Session, is similar to this bill which would have prohibited the use of consumer credit reports for employment purposes, as specified. AB 943 was vetoed by Governor Schwarzenegger. AB 2918 (Lieber) of 2007-08 Session, 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. AB 2918 was vetoed by Governor Schwarzenegger. SB 986 (Escutia) of 2005-06 Session 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. This bill was withdrawn by the author. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee: Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund New enforcement Up to $58 Up to $115 Up to $115 Special* Requirements *Labor Enforcement and Compliance fund SUPPORT : (Verified 8/17/11) California Labor Federation (source) ACLU AFSCME California Coalition for Women Prisoners California Conference Board of the Amalgamated Transit Union California Commission on the Status of Women California Conference of Machinists CONTINUED AB 22 Page 8 California Employment Lawyers Association CA NOW (National Organization for Women) California Nurses Association California Reinvestment Coalition California School Boards Association California Teamsters Public Affairs Council Consumer Action Consumer Attorneys of California Consumer Federation of California Communication Workers of America Demos East Bay Community Law Center Engineers and Scientists of California International Alliance of Theatrical State Employees, Local 80 International Longshore & Warehouse Union Legal Services for Prisoners with Children Los Angeles County Democratic Party Metro Chamber of Commerce National Consumer Law Center National Employment Law Project Professional & Technical Engineers, Local 21 Privacy Rights Clearinghouse SEIU Local 1000 UNITE HERE! United Food and Commercial Workers Union, Western States Council OPPOSITION : (Verified 8/17/11) Apartment Association of Greater Los Angeles Apartment Association, California Southern Cities Apartment Association of Orange County Associated General Contractors Association of California Healthcare Districts Association of California Water Agencies California Apartment Association California Association for Health Services at Home California Association of Licensed Investigators California Association of Realtors California Automotive Wholesalers' Association California Chapter of the American Fence Association California Chamber of Commerce California Employment Law Council CONTINUED AB 22 Page 9 California Fence Contractors' Association California Framing Contactors Association California Grocers Association California Hospital Association California Independent Grocers Association California Joint Powers Authority California New Car Dealers Association California Restaurant Association California Retailers Association California Special Districts Association California State Association of Counties CoreLogic Corona Valley Chamber of Commerce County Welfare Directors Association Engineering Contractors Association Experian Flasher Barricade Association Garden Grove Chamber of Commerce League of California Cities Marin Builders' Association National Federation of Independent Businesses Regional Council of Rural Counties San Diego County Apartment Association Santa Barbara Rental Property Association Southwest California Legislative Council TechAmerica TransUnion ARGUMENTS IN SUPPORT : 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 CONTINUED AB 22 Page 10 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 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. ARGUMENTS IN OPPOSITION : 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 maintain 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 CONTINUED AB 22 Page 11 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 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. ASSEMBLY FLOOR : AYES: Allen, Ammiano, Atkins, Beall, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Charles CONTINUED AB 22 Page 12 Calderon, Campos, Carter, Cedillo, Davis, Dickinson, Eng, Feuer, Fong, Fuentes, Furutani, Gordon, Hall, Hayashi, Roger Hernández, Hill, Hueso, Huffman, Lara, Bonnie Lowenthal, Mendoza, Mitchell, Monning, Pan, V. Manuel Pérez, Portantino, Skinner, Solorio, Swanson, Torres, Wieckowski, Williams, Yamada, John A. Pérez NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly, Fletcher, Beth Gaines, Garrick, Gatto, Grove, Hagman, Halderman, Harkey, Huber, Jeffries, Jones, Knight, Logue, Mansoor, Miller, Morrell, Nestande, Nielsen, Norby, Olsen, Silva, Smyth, Valadao, Wagner NO VOTE RECORDED: Alejo, Chesbro, Galgiani, Gorell, Ma, Perea PQ:do 8/17/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED