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New California Law Greatly Restricts Employers' Ability to Obtain and Use Credit Reports

  • October 11, 2011

Effective January 1, 2012, California will impose significant restrictions on an employer’s ability to obtain a credit report for employment purposes. 

California Assembly Bill 22, signed by Governor Jerry Brown, generally permits employers who are seeking to fill only specific, identified “exempt” positions to obtain and use credit reports to screen applicants and/or current employees.  The use of the credit reports in other occupations generally is prohibited.  Further, employers will be required to provide the employee or applicant with a disclosure statement setting forth the specific basis permitting the employer to obtain a credit report.  (Six other states currently have laws restricting employers’ use of credit reports: Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington.)

Credit reports may be obtained only if the position to be filled falls into one of eight “exempt” categories:

  1. Positions with the state Department of Justice;
  2. Managerial positions, i.e., employees who qualify for the “executive exemption” under California wage and hour law; 
  3. Sworn peace officers or other law enforcement personnel;
  4. Positions where the information sought in the credit report must be revealed by law;
  5. Positions that involve regular access to the personal information of others (i.e., bank or credit card account information, social security numbers, dates of birth), other than the regular solicitation of credit card applications at a retail establishment;
  6. Positions requiring the employee to be a named signatory on the employer’s bank or credit card or otherwise authorized to enter into financial contracts on behalf of the employer;
  7. Positions involving access to confidential or proprietary information of the employer; and
  8. Positions that involve regular access to $10,000 or more in cash.

Credit reports also may be obtained for employees of financial institutions subject to Sections 6801-6809 of the United States Code.  Technically, such businesses are not required to disclose the statutory support for obtaining a credit report.

California employers also are reminded that Senate Bill 909 is effective January 1, 2012.  This enactment requires employers to disclose to the subject of an investigative consumer report the website address, or, if there is no website, the telephone number of the investigative consumer reporting agency where the employee may find information about  the agency’s privacy practices.  The investigative consumer reporting agency also will be required to conspicuously post information regarding its privacy practices on its website or make such information available by mail.

What Employers Should Do

  1. California employers should ensure that they modify any practice of obtaining and using credit reports to comply with this new enactment.
  2. If use of a credit report is permitted, the disclosure form must be modified to disclose the permitted basis for the credit check.
  3. California employers should modify forms to ensure compliance with SB 909.
  4. Multi-state employers should ensure compliance with the requirements of the federal Fair Credit Reporting Act and applicable state laws.

If you have any questions regarding this new law and its implications, please contact the Jackson Lewis attorneys with whom you regularly work.

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