BILL ANALYSIS Ó AB 22 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 22 (Mendoza) As Amended September 1, 2011 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |45-29|(May 19, 2011) |SENATE: |21-17|(September 8, | | | | | | |2011) | ----------------------------------------------------------------- Original Committee Reference: JUD. SUMMARY : Prohibits, except as specified, an employer or prospective employer from using a consumer credit report for employment purposes. Specifically, this bill : 1)Prohibits an employer or prospective employer from using a consumer credit report for employment purposes, unless the position of the person for whom the report is sought is any of the following: a) A managerial position. b) A position in the state Department of Justice. c) A sworn peace officer or other law enforcement position. d) A position for which the information contained in the report is required by law to be disclosed or obtained. e) A position that involves regular access, for any purpose other than the routine solicitation and processing credit card applications in a retail establishment, to the bank or credit card information, social security number, and date of birth of any one person. f) A position in which the person is, or would be, a named signatory on the bank or credit card account of the employer. g) A position in which the person is or would be authorized, on behalf of the employer, to transfer money or enter into financial contracts. h) A position that involves access to confidential or AB 22 Page 2 proprietary information, including trade secrets, as defined. i) A position that involves regular access to cash totaling $10,000 or more of the employer, a customer, or client, during the workday. 2)Expands existing written notification requirements for any person using a credit report for employment purposes to also include identification of the specific basis for use of the report pursuant to these provisions. 3)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. 4)Defines, for purposes of this act, the term "consumer credit report" to have the same meaning as defined in Civil Code Section 1785.3(c), but does not include a report that a) verifies income or employment; and, b) does not include credit-related information, such as credit history, credit score, or credit record. 5)Defines, for purposes of this act, the term "managerial position" to mean an employee covered by the executive exemption set forth in Wage Order 4 of the Industrial Welfare Commission, as specified (8 California Code Regulations 11040). The Senate amendments clarify that a consumer credit report may not be used for employment purposes unless the position for whom the report is sought falls into one of several categories, including newly established categories for positions involving regular access to certain personal information, cash totaling $10,000, proprietary information (i.e., trade secrets), or involving the authority to conduct certain financial transactions on behalf of the employer. In addition, the amendments expand a required written notice and clarify two key definitions for the purpose of this act. AS PASSED BY THE ASSEMBLY , this bill was substantially similar to the version approved by the Senate. AB 22 Page 3 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 these provisions. COMMENTS : This bill seeks to prohibit the use of consumer credit reports for employment purposes unless the position sought falls into at least one of several categories specified by the bill, including 1) a managerial position (as defined under Wage Order 4 of the Industrial Welfare Commission), 2) a peace officer, 3) a position in the Department of Justice, or 4) a position where the information in the report is required by law to be disclosed or obtained. Additional categories of positions, as established by recent amendments, include 5) a position that involves regular access to specified personal information for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, 6) a position in which the person is or would be a named signatory on the employer's bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer's behalf, 7) a position that involves access to confidential or proprietary information, as specified, or 8) a position that involves regular access to cash of $10,000 or more of an employer, customer or client, during the workday. In addition, this bill requires any person using a credit report for employment purposes to identify the specific basis for use of the report within the existing written notification that is currently sent to the subject of the credit report alerting him or her to the fact that a credit report will be used. Finally, this bill exempts from these provisions banking and financial institutions already subject to privacy requirements under federal law. 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%. AB 22 Page 4 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 research that bolsters their contention that credit reports should not be used for employment purposes because they are too often inaccurate. For example, 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, a Texas Department of Insurance study in 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 AB 22 Page 5 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 FN: 0002733