New law bans use of credit reports in hiring and employment decisions

From the Law Office of Beeson, Tayer & Bodine

Last month Governor Brown signed a bill that dramatically limits how employers may use consumer credit information in connection with hiring and employment decisions in California.

Under federal law, an employer may obtain a credit report on current or prospective employees as long as it gets their written permission and notifies them if it takes any adverse action—such as not hiring or promoting them—as a result of the report. But the federal law does not prevent states from passing laws that are more protective of consumers.

The new law (AB 22) takes effect January 1, 2012 and bars employers from asking employees or job applicants for their consumer credit report for employment purposes.

Several exceptions apply, including: (1) Employers that are financial institutions, (2) the Department of Justice; (3) managerial positions, (4) sworn peace officers or other law enforcement positions, (5) where the information contained in the report is required by law to be disclosed or obtained, (6) positions that involve regular access to personal information for any purpose other than the routine solicitation and processing of credit card applications in a retail store, (7) positions in which the person is or would be a named signatory on the employer’s bank or credit card account, or is authorized to enter into financial contracts on the employer’s behalf, (8) positions involving access to confidential or proprietary information, and (9) positions that involve regular access to $10,000 or more of cash.

For individuals who fall under one of the exceptions, written notice that a credit report is being sought must be provided to the employee or applicant, and the notice must include the exception that warrants the report and the reason for obtaining the report. Job applicants who are denied employment because of information found in a consumer credit report must be informed of the reason and provided the name and address of the credit reporting agency.

AB 22 clarifies that “consumer credit report” does not include a report that verifies income or employment and does not include “credit-related information” (such as credit history, credit score, or credit records). So the new law does not bar background checks, including criminal background checks, provided by credit reporting and other firms that include a person’s employment and salary information, as long as those reports do not also contain credit-related information.

Sponsors of the California bill, including the California Labor Federation, said they want employer access to credit reports curtailed because they often have errors and have no bearing on a worker’s character or ability to do a job.

Schwarzenegger vetoed similar legislation in 2008, 2009, and 2010.

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