Bill to restrict credit checks on job seekers headed to Governor's desk

An important privacy bill that we (CFC) have vigorously supported this year is on its way to the Governor's desk. At this juncture, its difficult to predict what Governor Schwarzenegger will do, but certainly his record is one of supporting big business over the rights of average citizens, particularly when it comes to our privacy.

The bill in question - AB 943 (Mendoza) - would prohibit a prospective employer from using consumer credit reports in the hiring process. The bill provides exceptions in cases when the job duties include access to cash or other financial assets, when the job is in law enforcement and in other narrow areas. An employer should not have any right to obtain confidential information that is not germane to a prospective employee’s job.

Signifying the importance of this legislation to privacy advocates and consumer groups was it's inclusion in a letter from nine consumer rights organizations outlining legislative priorities during the final month of the 2009 session.

Signing the letter were CALPIRG, California Alliance for Retired Americans, Congress of California Seniors, Consumer Action, Consumer Federation of California, Consumers for Auto Reliability and Safety, Consumers Union, Older Women’s League of California, and Privacy Rights Clearinghouse.

Why is this an important consumer protection? Because credit reports do not have predictive value in determining a worker’s ability to perform job duties, but a bad credit report might unfairly influence a hiring employer’s attitude toward a job applicant.

Unemployed workers are more likely to have suffered some downgrading of their credit score due to the circumstances of their unemployment; hence reliance on credit reports as a factor in hiring decisions might adversely impact those most in need of a job. Credit reports are often inaccurate, and could unfairly bias an employer.

Correcting mistaken information in a credit report is a tedious, time consuming process, and in the meantime, the job applicant is harmed due to errors by credit reporting entities. We therefore, are urging the Governor to protect the financial privacy of Californians from unwarranted snooping by prospective employers by signing AB 943.

The bill passed the Senate floor by a vote of 24 to14 on September 3rd and the Assembly floor by a vote of 49 to 30 on May 28th.

Check out the Los Angeles Times write up on the bill in today's edition. Tiffany Hsu reports:

Employers increasingly are using credit checks to screen job applicants, a practice critics say is making it tougher for many unemployed workers to find jobs in the midst of a grinding recession. That could change by the end of this week, when a bill that would prohibit companies from pulling credit reports on most job seekers is scheduled to reach Gov. Arnold Schwarzenegger's desk.

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Employers increasingly are pulling credit reports on prospective hires; about 43% of employers do so, according to the Society for Human Resource Management. Federal law allows it as long as the job applicant gives authorization.

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...some academic studies have found little connection between credit history and job performance. Critics contend that the practice perpetuates a vicious cycle in a rough job market: Candidates with dinged credit have a tougher time landing work that would help them out of their financial bind. Civil rights organizations say the practice is particularly disadvantageous to minorities and women.

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The practice also discriminates against recent immigrants, some critics say, because credit scores are often based in part on the length of a consumer's credit history. And foreclosures, a common occurrence in the recession, can cause scores to dive hundreds of points -- and the information stays on the record for seven years. Divorce, identity theft and medical bills can also contribute to low credit without appearing on a report, supporters of the legislation said.

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