BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 943
Assemblymember Mendoza
As Amended April 14, 2009
Hearing Date: July 1, 2009
Labor Code
KB:jd
SUBJECT
Employment: Credit Reports
DESCRIPTION
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.
BACKGROUND
The 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.
Sec. 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
(more)
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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. (Civ. Code Sec. 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
consumer reporting agencies. (Civ. Code Sec. 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. Sec. 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'
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honesty and integrity, among other traits. AB 943 would
prohibit the use of credit checks for employment except under
specified circumstances. This bill is similar to AB 2918
(Lieber, 2008). (See Comment 3.)
This bill was approved by the Senate Committee on Labor and
Industrial Relations on June 25, 2009.
CHANGES TO EXISTING LAW
Existing law requires, prior to requesting a consumer credit
report for employment purposes, the user of the report to
provide notice to the person involved. The notice must inform
the person that a report will be used and the source of the
report, and must contain a box that the person may check off to
receive a copy of the credit report. If the consumer indicates
that he or she wishes to receive a copy of the credit report,
the user must request that a copy be provided to the person when
the user requests its copy from the credit reporting agency; and
the report must be provided to the user and the person
contemporaneously at no charge to the person. (Civ. Code Sec.
1785.20.5.)
Existing federal law , GLB, prohibits, except as specified, a
financial institution from disclosing a consumer's nonpublic
personal information to a nonaffiliated third party. (15 U.S.C.
Sec. 6801 et seq.)
This bill would prohibit an employer from obtaining a consumer
credit report for employment purposes unless the information in
the report is (1) substantially job related, meaning that the
position has access to money, other assets, or confidential
information; and (2) the position is a managerial position, a
position in a city, county, or both city and county, that of a
sworn peace office 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.
This bill would provide that its provisions do not apply to a
person or business subject to GLB, if the person or business is
subject to compliance oversight by a state or federal regulatory
agency with respect to statutes and regulations implementing
GLB.
COMMENT
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1. Stated need for the bill
The author states:
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. According to a
2004 study conducted by the Texas Department of Insurance,
African Americans have credit scores that are 10 percent to 35
percent lower than those of whites, and Latinos have credit
scores that are 5 percent to 25 percent lower than those of
whites. This disparity has likely increased since the
foreclosure crisis and the economic downturn. Divorced women,
who are three times more likely to file for bankruptcy than
married women, are also disadvantaged by this practice.
The author further states that research demonstrates that credit
history does not correlate with job performance. This combined
with the high level of inaccuracy in credit reports and the
discriminatory impact of credit checks on people of color and
divorced women leads the author to believe that credit checks in
the employment context should be restricted.
2. Potential discriminatory implications of employer credit
checks
Under Title VII of the Civil Rights Act of 1964 (Title VII),
employers are prohibited from discriminating on the basis of
race, color, religion, sex, or national origin. It is unlawful
to discriminate against any individual in regard to recruiting,
hiring and promotion, transfer, work assignments, performance
measurements, the work environment, job training, discipline and
discharge, wages and benefits, or any other term, condition, or
privilege of employment. Title VII prohibits not only
intentional discrimination, but also neutral job policies that
disproportionately affect persons of a certain race or color and
that are not related to the job and the needs of the business.
(See Griggs v. Duke Power Co., (1971) 401 U.S. 424, 431 ("The
Act proscribes not only overt discrimination but also practices
that are fair in form, but discriminatory in operation.").)
Accordingly, if an employment practice has a disparate impact
based on a protected characteristic, the practice is unlawful
unless the employer can establish that it is job related and
consistent with business necessity. (42 U.S.C. Sec.
2000e-(k)(1)(A)(i).)
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The U.S. Equal Employment Opportunity Commission (EEOC) has had
a longstanding position that credit checks can have an unlawful
disparate impact in violation of Title VII's prohibitions
against race and national origin discrimination. (See EEOC Dec.
72-1176 (1972) (bank policy of using credit information to
evaluate potential employee was unlawful in the absence of
business justification); EEOC Dec. 74-02 (1973) (manufacturing
company's policy of looking at applicants' financial status was
unlawful in absence of business justification).) In his recent
testimony before the Hawaii State Senate Committee on Labor, the
Acting Chairman of the EEOC outlined why, in most cases,
employers' credit check policies will be problematic under Title
VII's disparate impact standard. "First, credit reports are
often inaccurate and may include errors that are serious enough
for an individual to be denied a loan or employment. Second,
negative credit information may not account for individual
circumstances that could have been beyond an individual's
control, such as developing a disability, divorce, death of a
spouse, illness of a family member, identity theft, or employer
downsizing. Finally, even assuming that a credit report is an
accurate account of an individual's credit history, there is
little, if any evidence that credit information will generally
be predictive of successful job performance (citations
omitted)." (See U.S. EEOC, Office of the Chairman, Testimony
Before the Hawaii State Senate Committee on Labor, Thursday,
March 19, 2009.)
As these credit checks become more commonplace, the concern over
the disparate impact of employer credit check policies continues
to grow, particularly during this economic climate where
unemployment rates have skyrocketed and more individuals are
struggling financially.
3. This bill would prohibit credit checks except under
specified circumstances
In an effort to curb unwarranted credit checks in the employment
context, this bill would prohibit an employer from obtaining a
credit check for employment purposes unless the information in
the report is: (1) substantially job related, meaning that the
position has access to money, other assets, or confidential
information; and (2) the position is a managerial position, a
position in a city, county, or both city and county, that of a
sworn peace office or other law enforcement position, or a
position for which the information contained in the report is
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required to be disclosed by law or to be obtained by the
employer.
Last year, the Legislature passed a similar measure, AB 2918
(Lieber, 2008) which 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, who stated the
following in his veto message:
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.
4. Author's amendments
The author is offering the following amendment which would
additionally allow the Department of Justice to use a consumer
credit report for employment purposes when a person is applying
for a position that has access to money, other assets, or
confidential information.
The amendment would be as follows:
On page 3, line 15, after "(B)" insert:
"A position in the state Department of Justice."
5. Arguments in Support
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 percent,
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
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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 scores 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 employers.
6. Arguments in Opposition
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 further argue that there is a need to use information
from a credit report when making employment decisions where the
potential employee would be required to perform a wide variety
of duties which 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
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employees have significant financial responsibilities, including
the collection of rents and maintenance of on-site cash flow.
This bill would prohibit them from using consumer credit reports
when considering applicants 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 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 they
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.
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 Rural Legal Assistance
Foundation; California Southern Cities; California Teamsters
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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
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
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation :
AB 2918 (Lieber, 2008) See Comment 3.
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SB 986 (Escutia, 2005) 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
perform the job. The bill was not pursued by the author and it
was never heard in policy committee.
Prior Vote :
Assembly Labor and Employment Committee (Ayes 5, Noes 2)
Assembly Judiciary Committee (Ayes 7, Noes 3)
Assembly Appropriations Committee (Ayes 11, Noes 5)
Assembly Floor (Ayes 49, Noes 30)
Senate Labor and Industrial Relations Committee (Ayes 4, Noes 2)
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