BILL ANALYSIS
Senate Committee on Labor and Industrial Relations
Mark DeSaulnier, Chair
Date of Hearing: June 24, 2009 2009-2010 Regular
Session
Consultant: Alma Perez Fiscal:Yes
Urgency: No
Bill No: AB 943
Author: Mendoza
Version: April 14, 2009
SUBJECT
Employment: credit reports.
KEY ISSUE
Should employers be banned from using information found in
consumer credit reports to help make employment decisions?
PURPOSE
To prohibit the use of consumer credit reports for employment
purposes, except as specified.
ANALYSIS
Existing federal and state law limits the use of credit
information for employment purposes. Under the existing
California Consumer Credit Reporting Agencies Act (CCRAA), a
credit report in the employment context is defined as any
written, oral or other communication of any information by a
consumer credit reporting agency (CRA) bearing on an
individual's credit worthiness, credit standing or credit
capacity. The consumer credit report is used (or is expected to
be used) for the purpose of serving as a factor in establishing
an individual's eligibility for (1) personal, family, or
household purposes, or (2) employment purposes, or (3) hiring of
a dwelling unit, as specified, or (4) for other purposes as
specified. "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. (Civil Code 1785.3)
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. (15
U.S.C. 1681 et seq.) The FCRA places restrictions on an
employers' ability to use credit reports for employment purposes
by regulating how employers may use consumer reports. 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, that
a consumer report may be obtained;
Obtain prior written authorization from the applicant;
Certify to the CRA 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
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. (15 U.S.C. 1681 et seq.)
The existing California Consumer Credit Reporting Agencies Act
(CCRAA) , the state's counterpart to the FCRA, generally
regulates consumer credit reporting agencies and 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. (Civil Code 1785.1 et seq.) The CCRAA
allows consumers to dispute inaccurate information on a consumer
credit report and requires a consumer credit reporting agency to
Hearing Date: June 24, 2009 AB 943
Consultant: Alma Perez Page 2
Senate Committee on Labor and Industrial Relations
reinvestigate disputed information without charge.
The existing federal Gramm-Leach-Bliley Act (GLB) 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. (15 U.S.C. 6801 et seq.)
This Bill would prohibit an employer, except as specified, from
obtaining a consumer credit report for employment purposes.
Specifically, this bill would:
1. Prohibit the use of a consumer credit report for
employment purposes unless:
o The information contained in the report is
substantially job-related, meaning that the position
of the person for whom the report is sought has access
to money, other assets, or confidential information.
o The position of the person for whom the report
is sought is a managerial position, a position in a
city, county, or both city and county, 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.
1. Provide 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
Hearing Date: June 24, 2009 AB 943
Consultant: Alma Perez Page 3
Senate Committee on Labor and Industrial Relations
1. Need for this bill?
Currently, 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, March 19, 2009) This bill would prohibit an
employer, with the exception of certain financial
institutions, from obtaining a consumer credit report for
employment purposes, except as specified.
2. Consumer Credit Reporting Legislation in Other States :
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.
3. Staff Note :
Hearing Date: June 24, 2009 AB 943
Consultant: Alma Perez Page 4
Senate Committee on Labor and Industrial Relations
If approved by the Senate Labor and Industrial Relations
Committee, this bill will go to the Senate Judiciary
Committee, per Senate Rules.
4. Proponent Arguments :
Proponents of the measure argue that working families in
California are facing the worst economic crisis since the
Great Depression. Unemployment in California is now at 11%,
while at the same time Californians' credit histories are
deteriorating due to the economic downturn and the foreclosure
crisis. 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. Yet, proponents argue, employers routinely rely
on credit reports to deny employment to those who would have
otherwise been given a job.
According to the author, the Society of Human Resource
Management has reported that forty-three percent of US
employers currently conduct credit checks on job applicants.
Proponents believe that this is unfair, as there is no
evidence of any correlation between credit score and job
performance. 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. 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.
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
Hearing Date: June 24, 2009 AB 943
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Senate Committee on Labor and Industrial Relations
employers.
5. Opponent Arguments :
According to opponents of the bill, consumer credit reports
provide valuable information to employers in decision-making
processes including the hiring or promotion of an individual.
Opponents argue that employers work hard to create working
environments that are safe and secure, and believe that this
bill inappropriately limits the use of a consumer credit
report and does so at the expense of the health, safety, and
financial security of California businesses and their
customers.
Opponents argue the need to use information from a credit
report when making employment decision where the potential
employee would be required to perform a wide variety of duties
that may include access to cash, other assets, or confidential
information. 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 applicant's for
employment. The rental housing industry argues that this bill
will serve to the detriment of all tenants and landlords
because giving employees, who have not been properly screened
with the use of a consumer credit report, access to
confidential financial information of tenants and prospective
tenants could put that information at risk.
In addition, opponents argue, by restricting access to
consumer credit report information this bill may expose the
business' customers and employees to increased risks such as
identity, financial, and asset theft. Opponents state that
employee theft is a growing problem and cite 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. While a person's
credit history by itself is not predictive of potential theft,
opponents argue that access to credit information can be used
to evaluate an applicant's personal responsibility and
Hearing Date: June 24, 2009 AB 943
Consultant: Alma Perez Page 6
Senate Committee on Labor and Industrial Relations
organizational skills by their ability to pay their bills on
time and can reveal patterns that may present an unreasonable
risk to businesses.
Lastly, some opponents believe that the exemptions in this
bill will create a new area of confusion that puts employers
at risk of inadvertently violating the law and subjects them
to employment litigation. Opponents also fear that this bill
will lead to an increase in "retaliation" claims by
individuals claiming that they were not hired or promoted
because he or she failed to authorize the ordering of a credit
report. Overall, opponents believe that for any employer the
risk created by this bill represents a major liability that
discourages business growth in California.
6. Prior Legislation :
AB 2918 (Lieber) of 2008: Vetoed by the Governor
Similar to AB 943, this bill would have prohibited, except as
specified, the user of a consumer credit report 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 to be disclosed to or
obtained by the user of the report. AB 2918 was vetoed by the
Governor, and in his veto message the Governor stated that:
"This bill would significantly increase businesses'
exposure to civil actions over the use of credit checks.
Further, the bill would increase administrative costs to
those employers who must legitimately use credit reports as
a screening tool by requiring that the employer first abide
by its onerous requirements. California employers and
businesses have inherent needs to obtain information about
applicants for employment. The bill would become a new
employer obstacle to the use of available information
needed to make hiring decisions."
SB 986 (Escutia) of 2005: Bill Withdrawn by Author
This bill 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
Hearing Date: June 24, 2009 AB 943
Consultant: Alma Perez Page 7
Senate Committee on Labor and Industrial Relations
perform the job. The bill was not pursued by the author and
it was never heard in policy committee.
SUPPORT
All of Us or None
American Civil Liberties Union (ACLU)
American Federation of State, County and Municipal Employees,
AFL-CIO
California Applicants' Attorneys Association (CAAA)
California Commission on the Status of Women
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Immigrant Law Project
California Immigrant Policy Center
California Labor Federation, AFL-CIO
California National Organization for Women
California NOW
California Rural Legal Assistance Foundation
California Southern Cities
California Teamsters Public Affairs Council
Coalition for Humane Immigrant Rights of Los Angeles (CHIRLA)
Engineers and Scientists of California
International Longshore & Warehouse Union
Legal Services for Prisoners with Children
National Association for the Advancement of Colored People,
California State Conference
National Employment Law Project
National Lawyers Guild Labor & Employment Committee (L&EC)
Privacy Rights Clearinghouse
Professional & Technical Engineers, Local 21
Service Employees International Union (SEIU)
Strategic Committee of Public Employees, LIUNA California Labor
Federation, AFL-CIO
The Women's Foundation of California
UNITE HERE!
United Food and Commercial Workers Union, Western States Council
United Transportation Union
Hearing Date: June 24, 2009 AB 943
Consultant: Alma Perez Page 8
Senate Committee on Labor and Industrial Relations
OPPOSITION
Acxiom
Apartment Association of Greater Los Angeles
Apartment Association of Orange County
Apartment Association, California Southern Cities
Associated General Contractors
Association of California Insurance Companies
Association of California Water Agencies (unless amended)
California Apartment Association
California Association of Collectors
California Association of Health Services at Home (CAHSAH)
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
California Manufacturers & Technology Association
California Restaurant Association
California Retailers Association
California Society of Association Executives
Consumer Data Industry Association
Department of Industrial Relations
Engineering Contractors' Association
Experian
Flasher/Barricade Association
International Franchise Association
Life Technologies Corporation
Marin Builders' Association
National Federation of Independent Businesses
Reed Elsevier
Santa Barbara Rental Property Association
TransUnion
NEUTRAL
Hearing Date: June 24, 2009 AB 943
Consultant: Alma Perez Page 9
Senate Committee on Labor and Industrial Relations
California State Association of Counties (CSAC)
California State Sheriffs' Association (CSSA)
Regional Council of Rural Counties
* * *
Hearing Date: June 24, 2009 AB 943
Consultant: Alma Perez Page 10
Senate Committee on Labor and Industrial Relations