Are Employment Credit Reports an Endangered Species?

You’re in the job market. You’ve got a solid resume. You’re doing very well going through the interview process. All signs point to you being a strong candidate for that new job…and then the human resources person asks you to sign a consent form so they can pull your credit reports.

All of a sudden you go from confident to pessimistic. You’ve got poor credit and you know it’s probably going to cost you a job for which you are otherwise qualified. This scenario is all too common in 2011, a time when Federal law allows your potential employers (and existing employer) to access your credit report as part of their employment screening process.

Not only can your credit report cost you a new job, but it can also cost you a promotion.  Those of you who are employed are not out of the woods, as your employer can come to you at any time and ask for permission to see your credit reports. Just for the sake of clarity, your credit REPORTS are fair game if you give permission. Your credit SCORES are not. Scores are never sent to employers – despite the widespread mis-reporting on the topic.

California’s New Law

There is good news, however, on the topic of employment screening and credit reports.  A few weeks ago Assembly Bill 22 passed and became law. If you’re not familiar with AB22, the act amended the Labor Code of the state of California and heavily restricts the use of credit reports in employment screening processes. As you can imagine, the practice of using credit reports for employment screening purposes is highly controversial and opinions on the practice are polarized.

AB22 outlaws the practice except for only a few exceptions (but those exceptions seem to be fair enough that credit reports can still be used in situations where they arguably make sense). For example, you can no longer pull a credit report when hiring someone to work on a landscaping crew. But, you can pull a credit report if you’re staffing a human resources position at the landscaping company.

The difference between “legal” and “illegal” in that example is that one of the positions likely involves access to confidential information, while the other one does not. However, before AB22 both applicants could have had their credit reports accessed during the interview process, which could have lead to their disqualification. There are several other notable exceptions where credit reports can still be used for employment screening.

Peace Officer, Law Enforcement and state Department of Justice positions – If you’re applying for a job in any of these capacities, then credit reports are still fair game.

Managerial Positions – If you’re applying fora managerial position, then credit reports are still fair game. And, if you’re being considered for a promotion into a managerial position, a credit report can be pulled with your permission. This would include employees who are authorized to conduct banking or credit card business on behalf of the company.

Access to Sensitive Information – If you’re applying for a job where you’d have regular access to personal, confidential or proprietary information, a credit report is fair game.  The exception here is if you’re simply processing credit card applications in a retail store.  So, working a register at a mall store won’t lead to your credit report being pulled.

Regular Access to Large Amounts of Cash – If you’re applying for a job where you’ll have regular access to $10,000 in cash, or more, a credit report is still fair game.

The California law also requires written notice be provided informing the applicant that a credit report will be obtained. That notice must also inform the applicant why they are obtaining the report. The Federal law governing credit report use (Fair Credit Reporting Act) requires that the applicant authorize the release of his or her “employment” credit report in writing.

So why should you care about what is happening in California, especially if you don’t live or work there? You should care because California seems to be trendsetter when it comes to consumer protection legislation. And, there are some 20 other states that are considering restrictions on the use of credit reports for employment screening. The California model could easily become the model used by many other states.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.