Effective 1/1/12, the CCRAA (Labor Code section 1024.5) limits when private and public sector employers, except for financial institutions, lawfully can use consumer credit reports in connection with hiring and personnel decisions. Specifically, employers are permitted to use consumer credit reports only if the individual is applying for, works, or will work in the following positions:

• a managerial position (as the term elsewhere is defined by California law);
• a position for which the employer is required by law to consider credit history information;
• a position that affords regular access to bank or credit card account information, Social Security numbers, or dates of birth, provided, however, that the access to this information does not merely involve routine solicitation and processing of credit card applications in a retail establishment;
• a position where the individual is or will be a named signatory on the bank or credit card account of the employer and/or authorized to transfer money or authorized to enter into financial contracts on the employer’s behalf;
• a position that affords access to confidential or proprietary information; or
• a position that affords regular access during the workday to the employer’s, a customer’s or a client’s cash totaling at least $10,000.

The new law is triggered when an employer orders a consumer credit report from a vendor (commonly known as “consumer reporting agencies”) for employment purposes. The statutes generally require: (1) advance consent from the individual to order the credit report; (2) notice to the individual of the intended use of the report; and (3) notice to the individual if the report’s contents negatively impact his or her employment opportunities (commonly known as “adverse action letters”).

The CCRAA, imposes an additional notice obligation on employers that use consumer credit reports to screen job applicants and employees. Specifically, before ordering a consumer credit report concerning a job applicant or employee, the employer must notify the individual in writing of the basis under Labor Code section 1024.5 for permissibly using the consumer credit report (for example: because the individual is applying for or holds a managerial position, etc.).

Under the new laws, an individual who suffers damages as a result of “negligent” and “willful” violations can recover actual damages, including attorney’s fees and court costs, as well as punitive damages up to a maximum amount of $5,000.

What Employers Should Do

Before January 1, 2012, employers operating in California that use consumer credit reports for employment purposes should evaluate whether they are subject to the CCRAA, and, if so, which provisions, if any, they can invoke to justify the screening. Employers also should evaluate the sufficiency of the paperwork they use in conjunction with their screening procedures (e.g., consent forms) and modify the paperwork as needed to incorporate the notice mandated by the Labor Code. Regarding consent forms, employers should be aware of a related and modest amendment to the CCRAA’s companion statute, the Investigative Consumer Reporting Agencies Act. Effective January 1, 2012, employers that order background reports other than consumer credit reports (e.g., criminal background reports, motor vehicle reports, etc.) must notify job applicants and employees of the Internet website address of the consumer reporting agency, or, if the agency has no Internet website address, the telephone number of the agency where the individual can find information about the agency’s privacy practices.