Effective January 1, 2012, employers or prospective employers in California – with the exception of certain financial institutions – will be prohibited from obtaining consumer credit reports to use in the hiring and promotion process after Governor Jerry Brown recently signed into law Assembly Bill 22 (AB 22) that restricts usage of consumer credit reports for employment purposes. California now joins Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington as U.S. states that currently limit the use of credit checks by employers. To read AB 22, visit: http://leginfo.ca.gov/pub/11-12/bill/asm/ab_0001-0050/ab_22_bill_20110920_enrolled.pdf.

Introduced by Assemblymember Tony Mendoza (D-56th District), AB 22 will amend Section 1785.20.5 of the Civil Code and add Chapter 3.6 (commencing with Section 1024.5) to Part 2 of Division 2 of the Labor Code, relating to employment. This is Mendoza’s third attempt at similar legislation, after AB 482 (2010) and AB 943 (2009) were both vetoed by former Governor Arnold Schwarzenegger in the past. “This bill has the ability to put countless unemployed Californians back to work and will end the needless catch-22 that occurs when those seeking work to pay their bills cannot find it due to poor credit,” Assemblymember Mendoza stated in a press release on his website.

AB 22 bans the use of pre-employment credit checks for many employers. The bill prohibits employers or prospective employers from obtaining a consumer credit reports for employment purposes unless the position of the person for whom the report is sought is one of the following:

  • A managerial position;
  • A position in the state Department of Justice;
  • A sworn peace officer or other law enforcement position;
  • A position for which the information contained in the report is required by law to be disclosed or obtained;
  • A position that involves regular access to specified personal information for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment;
  • A position in which the person is or would be a named signatory on the employer’s bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer’s behalf;
  • A position that involves access to confidential or proprietary information; or
  • A position that involves regular access to $10,000 or more of cash.

In addition, AB 22 also requires the written notice informing the person for whom a consumer credit report is sought for employment purposes to also inform that person of the specific reason for obtaining the report.

The passage of AB 22 comes at a time when credit checks of job applicants have become more common. A 2010 survey from the Society for Human Resource Management (SHRM) revealed that 60 percent of employers polled conducted credit checks on some job applicants:

  • 13 percent of employers surveyed conducted credit checks on all job candidates.
  • 40 percent of employers surveyed did not conduct any credit checks on job candidates.
  • 47 percent of employers surveyed considered credit history for candidates of selected jobs.

“Generally speaking, employers should not use credit checks unless there is a clear business justification related to the job in question since some credit reports contain errors,” says Attorney Les Rosen, Founder and CEO of Employment Screening Resources (ESR), a San Francisco area background check company accredited by the National Association of Professional Background Screeners (NAPBS). “Employers should use extreme caution with credit reports and be aware of both federal and states laws such as AB 22.”

To help job applicants better understand credit checks, ESR offers a complimentary white paper, ‘The Use of Credit Reports in Employment Background Screening: An Overview for Job Applicants,’ available for download at http://www.esrcheck.com/Download/. For more information about background checks, visit Employment Screening Resources (ESR) at http://www.ESRcheck.com.

Related Article: Governor Brown Signs Two Bills Impacting Use of Credit Reports and E-Verify by Employers in California

About Employment Screening Resources (ESR):
Employment Screening Resources (ESR) literally wrote the book on background screening with “The Safe Hiring Manual” by ESR founder and CEO Lester Rosen. ESR streamlines the screening process and reduces administrative overhead though its proprietary technology solutions.  ESR is accredited by The National Association of Professional Background Screeners (NAPBS®), a distinction held by less than two percent of all screening firms. This important recognition was achieved by successfully passing a third party audit demonstrating compliance with the NAPBS Background Screening Agency Accreditation Program. By choosing an accredited screening firm like ESR, employers know they have selected an agency that meets the highest industry standards. For more information about ESR, visit http://www.ESRcheck.com.