Complying with the federal Fair Credit Reporting Act (the FCRA) is not easy. Compliance with both the FCRA and California restrictions on credit and background checks is much more challenging. Given California’s extra-strength privacy protections and penchant for workplace regulation, it is not surprising that California has peculiarities when it comes to credit and other background checks. In Part 1 of a three part blog, we take a dive into credit checks—California style.
California is one of a growing number of states with laws restricting use of credit history for employment. Effective January 1, 2012, California Labor Code Section 1024.5 generally prohibits the use of credit reports for employment purposes by private sector employers. If an exception to Section 1024.5 permits an employer to use credit reports, California employers must comply with both the FCRA and the California Consumer Credit Reporting Agencies Act, which are not always congruent.
Comparing and contrasting the FCRA with the California Consumer Credit Reporting Agencies Act
What FCRA requires—in a nutshell. Prior to conducting a background check on an applicant or employee through a third party, an employer must:
- Provide a notice/disclosure to the employee/applicant that the employer will seek a credit report. The disclosure must be clear, conspicuous, and made in a document consisting solely of the disclosure. This is a huge area of class action litigation.
- Supply a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.”
- Obtain written authorization/consent from the applicant/employee.
Prior to taking adverse employment action against an applicant/employee based, in whole or in part, on a consumer credit report (or investigative consumer report—more about those in Part 2), employers must follow a two-step notification process required by the FCRA: