How does AB22 affect credit checks in California?

Employers in California – and employers doing business in California – need to be aware of a new law that took effect January 1, 2012, that changed the way employers conduct employment credit checks in California: Assembly Bill 22 (AB 22). AB22 regulates the use of credit report checks of job applicants and current employees by employers for employment purposes and requires certain written notice to the consumer of the specific reason for obtaining the report.

Credit checks in California: What are the issues with AB22?

With the passage of AB 22, California joined eight other states to pass laws limiting credit report checks for employment purposes. The other states are Connecticut, Hawaii, Illinois, Maryland, Oregon, Washington, Vermont, and, most recently, Colorado. But this California regulation goes about it in a new way.

“California of course does it a little bit differently. The other states, the way they regulate credit reports (except for Hawaii), basically say that there has to be a nexus between the credit report and the job and you have to let the applicant know. California went this other direction and what the California legislature did was to enumerate those situations where a credit report would be appropriate and where it wouldn’t be appropriate . . . they created exceptions that were so large it swallows the rule.” Lester S. Rosen explained in a recent CER webinar.

Some would argue that AB22 creates a solution where there wasn’t a problem. There are no statistics to suggest there was a widespread issue with inappropriate use of credit reports, and credit reports for employment purposes do not have a credit score included.

Credit checks in California: Where does EEOC stand?

The EEOC also has been looking into the use of credit checks at the federal level. In October of 2010, the EEOC held a meeting exploring the use of credit checks for employment screening. It examined whether the growing use of credit histories as selection criteria in employment could have a disparate impact on protected classes of people such as African-Americans and Latinos. It is widely expected that EEOC will issue new guidance, but it has not happened yet.

Credit checks in California: How should employers proceed?

“The bottom line is, given the EEOC position, given the nature of employment credit reports, given California law, and also given the fact that of all the pre-employment tools, credit reports really come the closest to approaching this zone of privacy . . . we urge employers to really think this through.” Rosen advised. Use them only when really necessary.

Here are some other best practices for using credit checks in California:

• Do not use credit checks unless there is a clear business justification related to the job in question.
• Remember some credit reports contain errors, or contain data that is not yet updated (such as a home refinance – both the old and new loan may appear for a while).
• Use extreme caution with credit reports and be aware of both federal and states laws.

The above information is excerpted from the webinar “Background Checks in California: How To Comply with the EEOC’s Recently Issued Enforcement Guidance.” To register for a future webinar, visit CER webinars.

Lester S. Rosen, the founder and CEO of Employment Screening Resources, is a consultant, writer, and frequent presenter nationwide on pre-employment screening and safe hiring issues.