BILL ANALYSIS
AB 943
Page 1
Date of Hearing: April 27, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 943 (Mendoza) - As Amended: April 14, 2009
SUBJECT : EMPLOYMENT: CREDIT REPORTS
KEY ISSUE : SHOULD EMPLOYERS BE BANNED FROM USING CONSUMER
CREDIT REPORTS IN EMPLOYMENT DECISIONS, EXCEPT WHEN THE
INFORMATION IS SUBSTANTIALLY JOB-RELATED AND THE POSITION SOUGHT
IS EITHER MANAGERIAL, A SWORN PEACE OFFICER, A POSITION IN A
CITY OR COUNTY GOVERNMENT, OR THE INFORMATION IS ALREADY
REQUIRED BY LAW?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
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, a position
in a city or county government, or the information is already
required by law. This bill would also exempt financial
institutions already subject to existing privacy requirements
under federal law. The author contends that the record-high
unemployment rate and foreclosure crisis has increased the
urgent need for this worker protection. Moreover, the author
contends that credit scores are not accurate predictors of
employability. Finally, the author also argues this measure
will remedy the disparate impact of using credit reports against
women and people of color. The opposition states that this
measure would deprive employers of valuable information in
decision-making processes, including the hiring of an
individual. Prescreening through credit reports, the opposition
argues, may ultimately prevent employee theft and misuse of
sensitive information.
SUMMARY : Prohibits, except as specified, the use of consumer
credit reports for employment purposes. Specifically, this
bill :
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1 Prohibits an employer from using 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 of the person for whom the report is sought
is any of the following:
i) A managerial position.
ii) A position in a city, county, or city and county.
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)Provides 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.
EXISTING LAW :
1)Requires, under the federal Fair Credit Reporting Act (FCRA),
that the employer using a third-party to perform a background
check must notify the applicant and obtain consent for the
background check. (15 U.S.C. Section 1681 et seq.)
2)Requires, under the FCRA, that if an adverse decision is made
based upon the background check, the employer must provide the
applicant 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
employee a copy of the report and information on how to
dispute the contents of the report. (15 U.S.C. Section 1681
et seq.)
3)Requires, under California's Consumer Credit Reporting
Agencies Act (CCRAA), every consumer credit reporting agency
to allow a consumer, upon request and with proper
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identification, to visually inspect all files pertaining to
him or her that the agency maintains at the time of the
request. (Civil Code Section 1785.1 et seq.)
4)Allows, under the CCRAA, consumers to dispute inaccurate
information and requires a consumer credit reporting agency to
reinvestigate disputed information without charge. (Civil
Code Section 1785.1 et seq.)
5)Authorizes, under the California's Investigative Consumer
Reporting Agencies Act, investigative consumer reports to be
given only to third parties the investigative consumer
reporting 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. (Civil Code Section 1786 et seq.)
6)Prohibits, under the federal Gramm-Leach-Bliley Act (GLB), 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. Section 6801 et seq.)
COMMENTS : This bill seeks to 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, a position in a city or county government, or required
by law. This bill also seeks to exempt financial institutions
already subject to existing privacy requirements under federal
law.
According to the author, the credit histories of many
Californians are deteriorating due to the economic downturn and
the foreclosure crisis. As unemployment is at a twenty-five
year high, the author states that worker protections are thus
more important now than ever. This measure only restricts the
use of credit reports against otherwise qualified applicants who
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have, at some point in their lives, fallen on hard times.
BACKDROP : Currently, employers frequently use credit reports to
evaluate job applicants. Three national reporting agencies,
TransUnion, Equifax, and Experian, provide credit information to
employers often through intermediary companies. Credit checks
for employment purposes have risen dramatically in recent years,
and now 43 percent of employers perform credit checks on job
applicants.
The 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.
Section 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
that the employer notify the applicant and obtain consent for
the background check. The FCRA requires that, if an adverse
decision is made based upon the background check, the employer
must provide the applicant 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 employee 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. (Civil Code Section 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
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consumer reporting agencies. (Civil Code Section 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. Section 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'
honesty and integrity, among other traits.
RECENT LEGISLATION IN WASHINGTON STATE : In 2007, Washington
State enacted a law 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.
ARGUMENTS IN SUPPORT : Supporters argue that a person's credit
score says nothing about his or her character or ability to do a
job effectively and responsibly. As credit reports were not
designed as predictors of employability, the improper use of
credit reports negatively impacts people who have thin credit
files, including students, young workers, the poor, and the
elderly. Additionally, a 2003 study presented to the American
Psychological Society concluded that credit history has no
bearing on job performance at all.
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Supporters state that, beyond the impact on the individuals who
are denied work, using credit reports as a barrier to employment
is bad for the economy. Supporters argue that it creates a
vicious cycle of poverty for people who have fallen on hard
times. For instance, a foreclosure can cause a drop of 250
points or more on an individual's credit score, which can
significantly decrease opportunities for credit and employment.
Criticizing the predictive capabilities of credit reports, the
National Lawyers Guild Labor & Employment Committee states that:
This practice is unfair; there is no evidence of any
correlation between credit score and job performance. It
is also flawed by the high rate of errors in credit
reports. A 2004 report found that 25% of credit reports
have errors serious enough to result in the denial of
credit to that consumer.
A 2007 Zogby survey also reported that 37 percent 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. Negligence by credit reporting agencies may not be
the only cause of inaccurate reports. Other events outside an
individual's control, such as identify theft, data breaches, and
the improper sale of credit information, can also result in
damaging information appearing on an individual's credit report.
Most importantly, usage of credit reports disproportionately
impacts people of color and women workers, who are concentrated
in low-wage jobs that make it much harder to make ends meet.
For example, a Texas study found that the average credit score
of African Americans is roughly 10 to 35 percent lower than
whites, while the average score for Latinos is roughly 5 to 25
percent lower than whites.
EXEMPTIONS : On April 14, 2009, the bill was amended to allow
usage of credit reports subject to two requirements. 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, a position in a city or county government, or the
information is required by law. In response to these
amendments, the California State Association of Counties (CSAC),
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the California State Sheriffs' Association, and the Regional
Council of Rural Counties have removed their opposition to this
bill. In Sheriffs' offices, Treasurer-Tax Collector's office,
and Assessor's office, employees may have access to cash,
assets, and other confidential financial information. CSAC and
others argue that the targeted use of credit reports is crucial
to hiring a dependable county workforce.
The opposition, however, continues to object strongly to this
bill. Comprised of credit reporting agencies, business
associations, and manufacturing groups, the opposition argues
that these amendments are far more restrictive than AB 2918
(Lieber) of 2008, a bill that similarly restricted use of credit
reports:
As amended, AB 943 requires that the position have access
to cash, other assets, or personal information, but also
demands that the position meet additional criteria that
will exclude a significant number of employees who meet the
first condition.
As argued above, however, supporters argue this bill provides an
important worker protection without placing unreasonable
restrictions on employers in charge of key information.
ARGUMENTS IN OPPOSITION : The coalition of credit reporting
agencies, business associations, and manufacturing groups
strongly opposes this measure. Opponents argue generally that
consumer credit reports provide valuable information to
employers in decision-making processes, including the hiring of
an individual.
For example, the coalition states that employee theft is a
growing problem and cites Federal Bureau of Investigation (FBI)
data that demonstrates that employee theft is the fastest
growing crime in the United States and is expected to increase
by 15 percent annually. They contend that, on average
businesses lose as much as two percent of their sales to
employee theft. While a person'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.
In addition, opponents argue that by restricting access to this
information, this bill may expose consumers and other employees
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to an increased risk of identify theft as employees who handle
personal information may inappropriately use this financial
information. Employers strive to recruit and retain the best
employees who will help grow their business and increase
employment opportunities. They argue that consumer credit
reports provide one aspect of a potential employee's
responsibility.
These reports also provide information that provides
verification of an applicant's employment history. As one
supporter, Reed Elsevier and its division LexisNexis states:
Credit reports are integral to the hiring process because
employers must determine the accuracy and completeness of a
job application. Credit reports are used for employment
checks to show former addresses, former employment, and the
financial situation of a prospective employee.
Finally, opponents argue that the exemptions in this bill will
put employers at risk of inadvertently violating the law and
subjects them to confusing employment litigation.
Prior Related Legislation. AB 2918 (Lieber) of 2008 amended the
CCRAA to prohibit, except as specified, the user of a consumer
credit report from procuring a consumer credit report for
employment purposes unless the report is either substantially
job-related, as defined, or required by law to be disclosed to
or obtained by the use of the report. AB 2918 was vetoed by the
Governor.
SB 986 (Escutia) of 2005 required that when a consumer credit
report or investigative credit report is used for employment
purposes, the information be directly related to the skills
necessary to perform the job. SB 986 was never heard in policy
committee.
REGISTERED SUPPORT / OPPOSITION :
Support
All of Us or None
American Civil Liberties Union
California Applicants' Attorneys Association
California Commission on the Status of Women
California Conference Board of the Amalgamated Transit Union
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California Conference of Machinists
California Immigrant Policy Center
California Labor Federation, AFL-CIO
California Rural Legal Assistance Foundation
California Teamsters Public Affairs Council
Coalition for Humane Immigrant Rights of Los Angeles
Consumer Watchdog
East Bay Community Law Center
Engineers and Scientists of California
International Longshore & Warehouse Union
Legal Services for Prisoners with Children
Los Angeles Alliance for a New Economy
National Consumer Law Center
National Employment Law Project
National Lawyers Guild Labor and Employment Committee
Privacy Rights Clearinghouse
Professional & Technical Engineers, Local 21
Southern Christian Leadership Conference
Strategic Committee of Public Employees, LIUNA
UNITE HERE!
United Food and Commercial Workers Union, Western States Council
United Transportation Union
Women's Employment Rights Clinic, Golden Gate University School
of Law
Opposition
Acxiom
Associated General Contractors
California Apartment Association
California Association of Health Services at Home
California Association of Joint Powers Authorities
California Association of Licensed Investigators
California Chamber of Commerce
California Chapter of the American Fence Contractors'
Association
California Employment Law Council
California Fence Contractors' Association
California Grocers Association
California Hospital Association
California Hotel & Lodging Association
California Independent Grocers Association
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California Manufacturers & Technology Association
California Restaurant Association
California Retailers Association
Engineering Contractors' Association
Flasher/Barricade Association
Marin Builders' Association
National Federation of Independent Business
Reed Elsevier
TransUnion
Analysis Prepared by : Drew Liebert and Edward Ahn / JUD. /
(916) 319-2334