Beginning January 1, 2012, California employers may not rely on credit checks to make employment decisions for most types of employees. Assembly Bill 22 was signed into law by Governor Brown in 2011. Previously, Governor Schwarzenegger had vetoed similar bills in 2009 and 2010. California employers may still utilize consumer credit reports only for managerial employees or employees with access to confidential, proprietary or personal information, access to $10,000 or more in cash, or who will be a signatory on a bank account or credit card account. The new law amends California's Civil Code section 1785.20.5 to require an employer opting to use a credit check to provide written notice of that fact to the employee as well as a written notice of the legally permitted reason for the check. The employee must also be given an opportunity to request a copy of the credit report itself. If adverse employment action is taken against an employee because of a credit check, the employer must provide written notice of this fact to the employee. The employer must also provide the address and telephone number of the search service that furnished the credit report.
California is just the seventh state to enact restrictions on employers' ability to use credit checks for employment purposes, joining Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington. Many states' restrictions come after a Society for Human Resources Management poll in 2010 indicating that 60% of employers checked the credit of their employees. Thirteen (13) percent of these employees checked the credit of all applicants for employment.
Current federal law, contained in the Fair Credit Reporting Act (FCRA) of 1970, requires an employer to disclose, in a written document separate from the employment application, its intent to check an applicant's credit and to obtain the applicant's written authorization for the credit check. Once the credit check is performed, a copy of the credit report must be given to the applicant and a written statement of consumer rights, approved by the Federal Trade Commission, must be provided to the applicant prior to the employer taking any adverse employment actions.
Changes to the FCRA, along the lines of those now adopted in California, were proposed in the Equal Employment For All Act (H.R. 3149) introduced in Congress in 2009. That bill died but has been reintroduced as H.R. 321 in the current Congress. Although it has over thirty co-sponsors, H.R. 321 has been held in the House Subcommittee on Financial Institutions and Consumer Credit since March of 2011. Many observers do not believe the new bill will survive to become law. Unless Congress and the President enact H.R. 321 or similar legislation, California, Illinois and a small number of other states will remain in the minority with clear legal restrictions on employers' use of credit checks on employees.