A lot has been written about AB 22 the new California law about consumer credit reports. This post is intended to simply tell you what you need to do as a California employer to comply.

A credit report is not the same as what most people refer to as a background check. A credit report is information about an individual’s credit worthiness, credit standing, or credit capacity, which is used for employment purposes (such as evaluating an applicant for employment, or evaluating an employee for promotion or reassignment). A credit report is not a background or public records check on prior convictions, criminal history, lawsuits filed, or a reference check.

If all your company does is engage a reporting agency to conduct a background check (criminal convictions, lawsuits filed, DMV records), and have an HR representative call prior employers to verify dates of employment and eligibility for rehire, then there is only one change you need to make for 2012. You must add the reporting agency’s website address to your authorization forms so that individuals can go online and check that agency’s privacy policies. The agency’s name, address, and telephone number were already required; now, you must include the website address. That’s the only change.

But, if in addition to the standard background information you also do a credit check (as many employers do for finance or cash handling positions), then AB 22 may impact you more significantly. Now, you must explain the reason for the credit check in your notice and authorization form, and you can not get a credit report unless one of the following reasons applies:

  • Position is in management.
  • Position is in the State Department of Justice, a sworn peace officer or law enforcement.
  • Employer is required by law to consider credit history information.
  • Job requires regular access to bank or credit card account information, Social Security numbers, or dates of birth (but not if access to such information merely involves routine solicitation and processing of credit card applications in a retail establishment).
  • Employee will be a named signatory on the bank or credit card account of the employer.
  • Employee will be authorized to transfer money or authorized to enter into financial contracts on the employer’s behalf.
  • Job affords access to confidential or proprietary information.
  • Job affords regular access during the workday to the employer’s, a customer’s or a client’s cash totaling at least $10,000.

Of course, AB 22 creates new penalties for non-compliance. So diligent employers should review their practices, evaluate what positions (if any) require credit checks, and update their notice and authorization forms by year end.