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California restricts employer access to credit reports

By , CardRatings contributor
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Gov. Jerry Brown has signed a bill into law that restricts California employers' abilities to make hiring and promotion decisions based on the contents of employees' and applicants' credit reports.

Democratic State Assemblyman Tony Mendoza sponsored bill AB22, proposing tighter clamps on the kinds of companies that can access information about prospective employees' credit card, auto loan, and mortgage histories. The bill reached the governor's desk after a 21-17 vote that political observers called one of the most heavily lobbied debates in recent history.

Opposition: Credit report restriction hurts hiring

Republican State Senator Tom Harman opposed the bill on the grounds that employers should be allowed to use credit profiles to make safe hiring decisions. In a letter to Governor Brown, Harman equated a strong credit report with an "applicant's reliability, dependability, and integrity."

The California Chamber of Commerce placed the bill on its annual "job killer list," claiming that the proposed rule would discourage employers from adding personnel to their teams.

Supporters: No credit doesn't mean no trust

Meanwhile, consumer advocates lobbying in support of the bill cited testimony from recent Equal Employment Opportunity Commission hearings. Witnesses told the EEOC that credit reports often penalized the job applications of minority citizens who lacked access to credit cards and personal loans.

Residents of low income communities often depend on cash and prepaid debit cards, leaving few traces on consumer credit reports. According to a New York Times editorial, a TransUnion spokesman told Oregon lawmakers that his company could find no statistical connection between an applicant's credit report and "their likelihood to commit fraud."

Credit report still part of background check

The new law offers a compromise, of sorts. Financial institutions can still request credit reports for their employees and job applicants as part of routine background checks. Likewise, employers can include credit profiles as part of investigations related to jobs that require significant access to customer data or to corporate financial accounts.

However, retail employees who routinely solicit for store credit card applications are not deemed to have enough access to personal information to warrant having their own credit scores examined. The new California law joins similar rules enacted in Illinois, Oregon, Maryland, Connecticut, Hawaii and Washington.

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