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Lawmakers narrowly passed a heavily lobbied bill today that would prohibit employers from using credit reports to evaluate prospective employees in most circumstances.
AB 22, which passed the Senate 21-17 on a largely party-line vote, was one of the most-lobbied bills of the term, according to a database built by California Watch. The bill was opposed by business groups and the credit bureau Experian. Consumer groups supported the proposal. The bill appeared on 144 lobbying reports.
Assemblyman Tony Mendoza, D-Norwalk, introduced the bill, arguing that employers’ overuse of credit reports for common jobs was an unfair burden on unemployed workers.
“A credit report is an unfair lens through which to view job applicants,” Mendoza said in a statement. “Preventing someone from becoming gainfully employed due to a poor credit history is shameful.”
Two Democrats, Sen. Lou Correa, D-Santa Ana, and Sen. Roderick Wright, D-Inglewood, joined all 15 Senate Republicans in voting against the bill. Two Democrats did not vote.
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The act would still allow employers to obtain credit reports on prospective employees, but only for jobs for which a credit report is deemed “sufficiently job-related.” Those cases include those in which the employee would have access to money, other assets or confidential information, or would be able to access other people’s bank or credit card information, Social Security numbers, or birth dates.
Retail employees who solicit store credit card applications would be exempt. An exception also exists for employees in the state Department of Justice, managerial positions, law enforcement positions and people whose names are on the bank or credit card accounts of the employer or who can transfer money or enter contracts on behalf of the business.
The federal Fair Credit Reporting Act allows employers to obtain credit reports on potential new hires with their written permission and requires employers to notify them if taking adverse action based on information in the credit report. The employer also must provide a copy of the report unless the applicant waives his or her right to receive one.
Seventeen other states are said to be considering similar legislation.
Republicans blasted the new policy, describing the bill as a burdensome regulation that would prevent hiring. The California Chamber of Commerce included the bill on its annual “job killer” list.
“This bill would be the most restrictive in the nation,” said Senate minority leader Bob Dutton, R-Rancho Cucamonga. “Once again, we seem to be leading the charge to continue to be the worst place in the country for a small business to operate.”
Dutton added that the Federal Deposit Insurance Corp. had backed the use of credit reports by employers, describing them as a valuable tool.
Sen. Doug LaMalfa, R-Oroville, warned that without the use of credit reports, employers “might be bringing more marginal employees into the workplace.”
“As we’ve seen recently, even with the instance of a well-known Democrat treasurer, it takes only one person to cause harm, and small businesses need this tool,” said Sen. Sam Blakeslee, R-San Luis Obispo.
He was referring to Kinde Durkee, who was arrested last week and charged with mail fraud. Federal investigators claim she stole hundreds of thousands of dollars from campaign accounts she managed and used the funds for personal expenses.
Many workers apply for jobs through online applications that require them to consent to a credit report, said Sen. Mark DeSaulnier, D-Walnut Creek, who spoke in support of the measure.
“They can’t get that one-on-one interview with an employer or with an H.R. person because they go online, and they can’t get past the credit report,” DeSaulnier said. “And often, it’s through no fault of their own; it’s not a reflection of their character. It’s because something happened to them because of the economic environment that we’re in.”
Credit checks by employers have been on the rise in recent years, even as the worsening economy has led to a decline in many Americans’ credit scores. A survey by the Society for Human Resource Management in January 2010 showed that 60 percent of its member employers used credit checks during the hiring process, compared with 35 percent in 2001.
Sarah Crawford, senior counsel with the Employment Discrimination Project of the Lawyers' Committee for Civil Rights Under Law, testified at an October 2010 meeting of the Equal Employment Opportunity Commission that employers’ use of credit checks disproportionately affected minority applicants, who tended to have lower credit scores. Credit scores, she argued, did not predict an applicant’s future work performance.
Eric Rosenberg, director of state government relations for TransUnion, one of the three major credit bureaus, told Oregon legislators at a hearing last year, “At this point, we don’t have any research to show any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud.”
Former Gov. Arnold Schwarzenegger had twice vetoed earlier versions of Mendoza’s bill in 2009 and 2010. The bill passed the Assembly 45-29 in May.
The measure now awaits Gov. Jerry Brown’s signature.
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