Bill Banning Credit Report Use for Employment Passes Senate Fiscal Committee

Posted on Fri, Aug 19, 2011

A California Chamber of Commerce-opposed bill banning most employers from using consumer credit reports for employment purposes passed the Senate Appropriations Committee on Aug. 16, 2011.

AB 22 (Mendoza; D-Norwalk) unfairly limits private employers’ ability to use consumer credit reports for legitimate employment purposes, unless the information in the report is “substantially job-related” and for a “managerial position.”

Employers in California are already significantly limited in their use of information from employee credit reports. Specifically, the federal Fair Credit Reporting Act and California’s Consumer Credit Reporting Agencies Act require an employer to:

(1) Notify the individual that it may obtain a credit report for purposes of the employment action at issue and also provide information about the company utilized by the employer for obtaining a report;

(2)? Have the consent of the employee to obtain the report, and if requested, give the employee a copy of the report as well;

(3)? Provide the individual with a copy of the report and a “Summary of Your Rights Under the Fair Credit Reporting Act” if the employer intends to take an adverse action, such as not hiring the applicant based upon information contained in the credit report; and

(4) If an adverse action is taken, disclose to the individual the credit reporting agency that provided the report as well as provide notice of the individual’s right to dispute any information in the report and also obtain another free report from the credit reporting agency. Existing law provides the needed protections for applicants and/or consumers with regard to employee credit reports.

Finally, although other states, such as Oregon and Illinois, recently enacted legislation limiting the use of employee credit reports, such legislation is not nearly as restrictive as AB 22. The legislation passed in these other states allows employee credit reports to be utilized for any position where a credit report is “substantially job related” and/or is a “bona fide occupational” requirement.

Conversely, AB 22 limits the use of credit reports to “managerial positions” where credit history is “substantially job related,” thus ignoring the other numerous non-managerial positions in the workforce where employees have unsupervised access to employers’ and consumers’ financial information, trade secret information and assets.

AB 22 passed the Senate Appropriations Committee on August 15, 5-2. The bill will be considered next by the entire Senate. See CalChamber’s Top Stories for detailed coverage of AB 22.

By: Jennifer Barrera

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