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Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
William W. Monning, Chair
AB 943 (Mendoza) - As Amended: April 14, 2009
SUBJECT : Employment: credit reports.
SUMMARY : Prohibits, except as specified, the use of consumer
credit reports for employment purposes. Specifically,
this
bill :
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.
FISCAL EFFECT : Unknown
COMMENTS : The federal Fair Credit Reporting Act (FCRA) was
enacted to promote accuracy, fairness, and privacy of personal
information assembled by consumer credit reporting agencies.
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(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 (CC) 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
consumer reporting agencies. (CC 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
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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.
According to Spherion, a recruitment and staffing agency,
employer use of credit checks in the United States has increased
55 percent over the last five years. As a result, "pulling
credit" on employees has become more popular for employers
outside of the banking and financial industries.
A recent survey conducted by Salary.com revealed that running a
credit report is a relatively common practice employers use to
judge an applicants' level of responsibility, verify their
employment history and identity, and assess their risk for
workplace theft. In fact, more than one in five small and
medium sized businesses use credit reports in the hiring
process. The following demonstrates the primary reasons cited
by employers in using credit history in the hiring process: (1)
to determine if candidate is responsible (68%); (2) to verify
identity (51%); (3) to verify employment history (50%); (4) to
assess likelihood for workplace theft (46%).
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, particularly in this economic climate, a
person's credit score says nothing about his or her character or
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ability to do a job effectively and responsibly. Nonetheless,
employers routinely rely on credit scores to deny employment to
those who would have otherwise been offered employment.
Supports 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. It prevents people who have fallen on
hard times from finding a path out of poverty and making a
better life for them and their families. It prevents applicants
from being judged on their merits and it legitimizes
discrimination in hiring.
Supporters raise the following specific concerns with respect to
the use of credit reports for employment purposes:
Credit checks for employment purposes have risen
dramatically in recent years and now 43 percent of
employers perform credit checks on job applicants.
A 2003 study concluded that credit history does not
predict job performance.
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.
The use of credit reports in employment may have a
disparate impact on people of color. 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.
Credit reports are often inaccurate. A 2007 Zogby
survey 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.
Therefore, supporters argues that as we struggle to repair our
economy and put Californians back to work, this bill provides an
important worker protection without placing unreasonable
restrictions on employers.
ARGUMENTS IN OPPOSITION :
Opponents argue generally that consumer credit reports provide
valuable information to employers in decision-making processes,
including the hiring of an individual.
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For example, they state that employee theft is a growing problem
and cite to 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
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.
Finally, opponents argue 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.
PRIOR LEGISLATION :
This measure is very similar, but not identical to AB 2918
(Lieber) from last session. AB 2918 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 Governor Schwarzenegger, who stated the
following in his veto message:
"This bill would prohibit the use of consumer credit
reports for employment purposes unless the information is
either substantially job related, as defined, or required
by law to be disclosed to or obtained by the user of the
report.
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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) from 2005 would have 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
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
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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 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
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 : Ben Ebbink / L. & E. / (916) 319-2091
