BILL ANALYSIS Ó
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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
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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
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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.
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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,
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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
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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."
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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
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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
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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
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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
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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
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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
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