California Passes Law Concerning Use of Credit Reports in Hiring. Is Indiana next?

Using credit reports to help make hiring decisions has just become more difficult for California companies. On October 9, California Governor Edmund Brown signed Legislation AB22,which greatly restricts an employer or prospective employer’s use of credit reports in the hiring process. California joins Hawaii, Oregon, Washington, Connecticut, Maryland and Illinois as states that have similar laws on the books. More than a dozen states currently have similar proposals on the table, including Indiana.

The new legislation prohibits an employer, with the exception of financial institutions, from obtaining a consumer credit report unless the position meets at least one of the following eight criteria:

• Is a position in the state Department of Justice;
• Is a managerial position, as defined;
• Is that of a sworn peace officer or other law enforcement position;
• Is a position for which the information contained in the report is required by law to be disclosed or obtained;
• Is a position that involves regular access to specified personal information for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment;
• Is a position in which the person is or would be a named signatory on the employer’s bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer’s behalf;
• Is a position that involves access to confidential or proprietary information, as specified, or
• Is a position that involves regular access to $10,000 or more of cash, as specified.

If the position meets one of these criteria, the employer is still required to obtain authorization to run the report. The legislation also requires employers to provide written notice informing the person of the specific reason for requesting the report. The prospective employee must be given an opportunity to receive a copy of the credit report and employers are required to follow the adverse action process if employment is denied in whole or in part based on the credit report.

The specific legislation and the criteria may vary by state. Please check your state’s specific laws concerning credit checks, or consult an attorney.

The Federal Government is also keenly interested in the use of credit reports for hiring.

Congress is considering its own limit on employment-related credit checks. In January 2011, the Equal Employment For All Act (H.R. 321) was introduced in the House. The bill seeks to amend the Fair Credit Reporting Act to “prohibit the use of consumer credit checks against prospective and current employees for the purposes of making adverse employment decisions.”