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California Limits Credit Reports

By Michael Klazema on 10/14/2011

Like most bills restricting the use of credit reports in employment decisions, AB 22 includes categorical exemptions, allowing employers to obtain credit reports in situations including the following:

  1. A managerial position.
  2. A position in the state Department of Justice.
  3. That of a sworn peace officer or other law enforcement position.
  4. A position for which the information contained in the report is required by law.
  5. A position that involves regular access, for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, to all of the following types of information of any one person:
    1. Bank or credit card account information.  
    2. Social security number.  
    3. Date of birth.  
  6. position in which the person is, or would be, any of the following:
    1. A named signatory on the bank or credit card account of the employer.
    2. Authorized to transfer money on behalf of the employer.
    3. Authorized to enter into financial contracts on behalf of the employer.  
  7. A position that involves access to confidential or proprietary information, including a formula, pattern, compilation, program, device, method, technique, process or trade secret that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who may obtain economic value from the disclosure or use of the information, and (ii) is the subject of an effort that is reasonable under the circumstances to maintain secrecy of the information.
  8. A position that involves regular access to cash totaling ten thousand dollars ($10,000) or more of the employer, a customer, or client, during the workda.

Before requesting a credit report in any of these situations, the employer must provide the applicant or employee a notice that:

  1. says that the employer will use the report;
  2. identifies the source of the report;
  3. identifies the specific basis listed above that allows the credit report; and
  4. allows the applicant or employee to request a free copy of the report from the employer by checking a box.

If the employee checks the box, the employer must request a copy for the applicant or employee at the same time as the employer requests the report. The employer may not charge the applicant or employee for the copy.

The law does not apply to any position with a financial institution subject to the Gramm-Leach-Bliley Act.

Clients should immediately plan on how to change their background screening notices to applicants and employees. backgroundchecks.com’s recommendation is that, before the end of 2011 clients should:

  1. compile a list of all positions for which they request credit reports in California;
  2. determine whether any of the listed reasons permit it to obtain the credit report for each position;
  3. for positions without a permitted reason, stop ordering credit reports;
  4. for positions with a permitted reason, create modified disclosure and authorization forms to specify the reason and the other required components of the notice.

For the purpose of identifying the source of the credit report, backgroundchecks.com believes that the best approach when buying credit reports from a credit bureau through a reseller (like backgroundchecks.com) is to state that you are obtaining the report from the credit bureau through the reseller. (For example, “We will obtain the credit report from TransUnion through backgroundchecks.com.”)

For more information on how this update may affect your screening program and how backgroundchecks.com can help, please contact customer service.


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