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A couple of weeks ago we posted about  California SB1384 –a fast moving bill that would expand the definition of a nationwide specialty consumer reporting agency and would require companies fitting that description to place a freeze on consumer files upon request by a consumer.

This bill is scheduled to be heard today, despite the many concerns and issues including those listed here:

•    Under California law, consumers already have a right to place a credit freeze with a consumer credit reporting agency.  Expanding that to include non-credit consumer information could have significant consequences to employers and consumers.
•    Consumers would be able to suspend access to non-credit consumer report information (i.e. his/her criminal history, evictions etc.) thereby denying business (end users of consumer reports) access to information critical in making risk and hiring decisions.
•    Freezing access to non-credit consumer reports may restrict or deny access to public information by businesses—even those that already have the consumer’s consent as mandated by the FCRA.
•    Before a freeze could be lifted, the business may have already moved on to an applicant whose history could be vetted more immediately.
•    11 states specifically prohibit freezing of non-credit consumer information; several other states specifically exempt non-credit consumer information from their credit freeze legislation.
•    Significant consumer protections already exist in California and under the Federal Fair Credit Reporting Act (FCRA) via oversight by the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).

The bottom line is this– we foresee many unintended consequences that will negatively impact California business owners and consumers if this bill moves forward, unchecked.

If you agree, please contact the California Senators below by phone, email, fax or web form to urge them to oppose this bill.
Sen. Ron Calderon
Phone: (916) 651-4030
Fax: (916) 327-8755
Sen. Lou Correa
Phone(714) 558-4400
Fax: (714) 558-4111
Sen. Ed Hernandez
Phone: (916) 651-4024
Fax: (916) 445-0485
Sen. Ted Lieu
Phone: (916) 651-4028
Fax: (916) 323-6056
Sen. Gloria Negrete McLeod
Phone: (916) 651-4032
Fax: (916) 445-0128
Sen. Alex Padilla
Phone:  916-651-4020
Sen. Curren Price
Phone: (916) 651-4026
Fax: (916) 445-8899
Sen. Michael Rubio
Phone: (661) 395-2620
Fax: (661) 395-2622
Sen. Juan Vargas
Phone: (916) 651-4040
Fax: (916) 327-3522
Sen. Rod Wright
Phone: (916) 651-4025
Fax: (916) 445-3712
Sen. Leland Yee
Email: Senator.Yee@senate.ca.gov
Phone: (916) 651-4008

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It is no secret that both state and federal governments have been scrutinizing the practice of employment background screening like never before and that they have been actively pursuing legislation and litigation to limit the use of this hiring tool.  See list below for examples:

  • dozens of new federal and state laws that affect hiring practices, employee rights and labor relations;
  • increased enforcement actions and lawsuits brought by the Equal Employment Opportunity Commission (EEOC) challenging the use of credit and criminal history;
  • a growing risk of discrimination charges (the EEOC received 99,947 discrimination charge filings in 2011—the highest number in its 46-year history);
  • legislative attempts to expand “protected class” status to the unemployed and ex-offenders;
  • an explosion of “failure to hire” suits due, in part, to the tight job market and a greater number of rejected applicants;
  • an increase in lawsuits for violations of the Fair Credit Reporting Act;
  • legal action related to the use of arrest records (PepsiCo recently lost a $3.1 million settlement related to this);
  • costly challenges related to obtaining proper consent to conduct background checks (First Transit lost a $5.9 million settlement for failure to do so);
  • “Ban the Box” initiatives at the state and local levels;
  • new state laws restricting the use of credit reports;
  • the prevalence of social media and other new technologies as screening tools;

Over the past couple of years, I have had the pleasure and privilege of working closely with a group of organizations and individuals determined to make sure that employers voices are being heard and that their concerns are being addressed.

I have not publicly broadcast my involvement in this group because I didn’t want to tip my hat as to strategies we were pursuing and tactics we intended to utilize along the way.  And while, we have only just begun, we are at a point where our efforts are becoming more public.

The biggest issue we have been addressing lately is the EEOC’s efforts to develop new guidance on how employers should use both criminal records and credit reports.  And as these issues have been coming to a boiling point over the past several months, the group decided that it was time to go on record with our concerns about EEOC’s actions and advocate on behalf of employers who use these screening tools to mitigate risk in the workplace.

This week, we held the Due Diligence, Background Checks and Employment Conference at the U.S. Chamber of Commerce in Washington D.C.  This one day symposium featured presenters and panelists that spoke directly about the need for employers to conduct criminal background checks and the role they play in protecting their employees, their customers and their businesses.

Over the next week or so, I intend to highlight some of the information that was shared at this conference. But here is one thing that is vitally important to communicate.  The EEOC circulated new guidance on credit reports a couple weeks ago to their five commissioners and has fast-tracked final guidance.  It could come any day now.

Be prepared for guidelines that will effectively end the practice of checking a job candidate’s credit report at any time during the hiring process or tenure of their employment.  The burden of proof will be on the employer to demonstrate a business need.  This is not a doomsday prediction.  EEOC Commissioner, Victoria Lipnic (who is largely supportive of employer’s rights on background checks) spoke at this conference and even she shared her concerns about the use of credit reports and their potential for disparate impact on minorities.  If Commissioner Lipnic has reservations, it is a foregone conclusion that her colleagues will take an even stronger position against employer use.

Please know that we are doing everything in our power to highlight the ramifications of the new guidance and how employers will suffer if their ability to make an informed decision is restricted.

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The Colorado Senate Judiciary Committee approved Senate Bill 3 “The Employment Opportunity Act” which prohibits pre-employment credit checks that some companies use to determine hire eligibility.  The bill is borne out of notion that people are being unfairly denied employment based on their credit when their financial well-being has nothing to do with the job they are seeking.

This bill’s sponsor, Senator Morgan Carroll (D) asserts that, “Credit scores were never intended to be used in hiring practices,” and goes on to say that, “Tying credit scores with employment opportunity creates a vicious circle that unfairly punishes struggling Coloradans. We should be doing everything in our power to get citizens back to work, and this legislation ensures that we are removing unnecessary punitive barriers and helping citizens get back on their feet.”

Note: The Senator holds a common misconception that employment credit reports contain a credit score.

The bill seeks to prohibit employers from evaluating a prospective employee’s credit information unless it is directly related to the position for which a candidate is applying, such as a money or asset management role.

This bill is now officially out of committee and will be presented to the full state senate for consideration.

If this passes state approval, Colorado will join the states of Washington, Hawaii, Oregon, Connecticut, Maryland, Illinois and California who each have similar laws.

Also, please note that we understand that the EEOC will be reviewing draft guidance on this issue over the coming weeks which could make any state actions a moot point.

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We just published The Verifier XXIV, Fall 2011 Edition, a publication intended as an educational tool and information resource for human resource professionals or anyone interested in keeping abreast of recent employment screening and background check industry developments.

Highlights of this issue include the following:

Articles:

Announcements and Legislative Updates

Check it out!

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Thought I’d share a little background screening humor thanks to our friend Praj Patel at TalentTech.

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It’s official. The state of California becomes the seventh state to prohibit employers from using credit reports to make employment decisions. California Governor Jerry Brown signed AB 22 which will take effect on January 1, 2012. Like it’s counterparts in the states of Maryland, Oregon, Hawaii, Illinois, Washington and Connecticut there are some exceptions. Employers may consider a credit report under the following circumstances only if the candidate is informed that a report will be sought and they have obtained written permission:

  • A managerial position
  • A position in the state Department of Justice
  • A sworn peace officer or other law enforcement
  • A position for which the information contained in the report is required by law to be disclosed or obtained
  • A position that involves regular access to confidential information such as credit card account information, Social security number, or Date of birth
  • A position which the person can enter into financial transactions on behalf of the company
  • A position that involves access to confidential or proprietary information
  • A position that involves regular access to cash totaling ten thousand dollars ($10,000) or more of the employer, a customer, or client, during the workday

On a personal level, everyone saw this coming. Former Governor Arnold Schwarzenegger vetoed similar measures during his tenure on two occasions. And the rising tide of similar legislation in other states only bolstered the state assembly’s efforts to make this happen.

While I was once opposed to this type of legislation, I have slowly warmed to the concept. The truth is that employers that do not use credit reports for the exempted purposes probably shouldn’t have been using them to make hiring decisions in the first place.

Any employer that operates in the state of California and utilizes credit reports or might do so in the future should consider evaluating their employment screening policies.

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Jon Hyman of Ohio Employer’s Law Blog fame just posted about yet another embarrassing episode for the EEOC.  This time they were ordered to pay Cintas Corporation nearly $3 million dollars for overzealous legal tactics.  This on the heels of the PeopleMark ruling earlier this year which resulted in a $750,000 judgment against the agency.  Jon also recently wrote about another ruling that went against the EEOC in the Kaplan Higher Education case which deals with the use of an employer’s use credit reports as part of the background screening process.  And at the same time they are unfairly saddling these corporations with unfounded lawsuits, they are wasting time and tax payer money which affects us all.  See Jon’s complete post below.

A Michigan federal judge has slammed the EEOC for its “reckless sue first, ask questions later strategy.” After 11 years of litigation, the court awarded the EEOC’s target, Cintas Corporation, $2,638,443.93 in attorneys’ fees, costs, and expenses from the agency.

The court justified its astronomical award based on the EEOC’s failure to investigate before filing suit, and dilatory tactics before and after filing suit:

  • The EEOC did not investigate the specific allegations of any of the thirteen allegedly aggrieved persons until after the Serrano plaintiffs filed their initial complaint, and after it filed its own complaint years later.
  • The EEOC did not engage in any conciliation measures as required by § 706 prior to filing suit on behalf of the named Plaintiffs.
  • The EEOC did not identify any of the thirteen allegedly aggrieved persons as members of the “class” until after the EEOC filed its initial complaint.
  • The EEOC failed to make an individualized reasonable cause determination as to the specific allegations of any of the thirteen named plaintiffs in this action….

During the course of its involvement in this case, the EEOC filed, and lost, over a dozen motions. Furthermore, Cintas was forced to file a number of motions because of the EEOC’s failure to properly respond to Cintas’ discovery requests. Cintas succeeded on all of these motions, and the EEOC’s conduct served only to prolong this decade-long litigation…. In his March 2, 2010 Order Granting Motion to Compel, Magistrate Judge Scheer stated, “There appears to be no purpose for [the EEOC’s] position [to withhold the questionnaires] other than to increase the difficulty and expense of the defense of this action by Cintas.”

Employers, if you’ve ever been sued by the EEOC, you know it is never fun to be in its crosshairs. Unlike you, the agency does not pay lawyers to litigate for it, and has seemingly unlimited resources to make your lives a living hell. Take heart, though, that there are judges who will hold the EEOC’s feet to the litigation fire. As this case illustrates, it is possible to beat the EEOC at its own game. But, it’s going to take perseverance.

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We just published The Verifier XXIII, Summer 2011 Edition, a publication intended as an educational tool and information resource for human resource professionals or anyone interested in keeping abreast of recent employment screening and background check industry developments.

Highlights of this issue include the following:

Articles:

Announcements and Legislative Updates

Check it out!

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Effective July 21, 2011, Fair Credit Reporting Act (“FCRA”) adverse-action and risk-based pricing notices must disclose any numerical credit score that contributed to the: (1) adverse action; or (2) extension of credit on terms materially less favorable than those available to a substantial portion of customers.

If you are hearing this for the first time, you aren’t alone.  And here’s why most of you shouldn’t care.

These rules only apply if you are evaluating a credit score.  Remember that employment credit reports (most commonly used on employment background checks) do not include a credit score.

Why are we bothering you with this useless information if it doesn’t affect you?  Well, to let you know if you hear about it, that it most likely doesn’t affect you. If you are reviewing credit scores, you might want to read the information below provided by Seyfarth Shaw labor and employment attorney, Pam Devata.

The FCRA requires a person taking adverse action based in whole or in part on a consumer report to provide an adverse-action notice. Section 1100F of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act) amended Section 615(a) of the FCRA to require users of credit scores to include those scores, and related information, in adverse-action notices provided to consumers. The requirement to disclose credit score information in FCRA adverse-action notices also applies to adverse-action decisions not related to credit.

Consequently, when a user takes any adverse action based in whole or in part on information contained in a consumer report, regardless of the weight of the credit score in the decision, the user must provide the consumer with the following:

*          The credit score;

*          The range of possible credit scores under the model used;

*          All of the key factors that adversely affected the credit score

(not to exceed four factors, unless one factor is the number of inquiries made with respect to the report, in which case the key factors may not exceed five);

*          The date on which the credit score was created; and

*          The name of the person or entity that provided the credit score.

New Risk-Based Pricing Notice Requirements:

Risk-based pricing refers to the practice of setting or adjusting the price and other terms of credit offered or extended to a particular consumer to reflect the risk of nonpayment by that consumer. The FCRA also requires a creditor to provide a risk-based pricing notice to a consumer when the creditor uses a consumer report in connection with a credit application or review of an existing account and, based on the report, grants credit or amends existing credit on terms that are materially less favorable than the most favorable terms obtained by a substantial portion of consumers. The Federal Reserve Board (the

“Board”) and the Federal Trade Commission (“FTC”) recently amended their respective risk-based pricing rules to require disclosure of credit scores and information relating to credit scores in risk-based pricing notices if a credit score of the consumer is used in setting or adjusting the material terms of credit.

The Board’s and the FTC’s rules require the same additional information to be included in a risk-based pricing notice as is required for the adverse-action notices.  In addition, the risk-based pricing notices must include a prescribed statement explaining credit scores that includes a disclosure that the credit score was used in setting the credit terms. For example, a statement such as:

*          “Your credit score is a number that reflects the information in

your credit report.  We used your credit score to set the terms of credit we are offering you.  Your credit score can change, depending on how your credit history changes.”

The Board’s and the FTC’s rules also recommend that the risk-based pricing notices contain optional contact information for the entity that provided the credit score.

Common Questions:

The new rules raise a lot of questions, many of which are addressed in the commentary to the rules, such as: (1) whether credit score disclosures are required when only the credit score of a guarantor, co-signer, surety, or endorser is used (no disclosure is required); (2) whether there are safe-harbor model notices that can be used (yes there are); and (3) what to do when dealing with proprietary scores, three-party financing transactions, more than one applicant, no credit score, and multiple credit scores (the commentary addresses these questions as well).

Two of the more common questions, however, concern “what is a credit score” and “when is a credit score used.”  The commentary makes clear that a score that is not used to predict creditworthiness, such as an insurance score, is not a “credit score” and need not be disclosed.  The commentary also makes clear that “use” occurs at a very low threshold and if the credit score played any role in the decision (for example, if the credit score led the user of the credit score to investigate further and the results of that investigation played a role in the decision), then the credit score was used and must be disclosed.

Many of these same questions can also be answered by reviewing the “Forty Years of Experience with the Fair Credit Reporting Act” report that the FTC issued today and is available at http://www.ftc.gov/os/2011/07/110720fcrareport.pdf.  This report is the most up-to-date FTC guidance on interpreting the FCRA.

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On July 13, 2011, Connecticut governor Daniel P. Malloy signed into law a bill which will prohibit most employers from evaluating a candidate’s credit report as part of the employment screening process.  The law is akin to a similarly a passed measure in the state of Maryland earlier this summer in that it carves out a number of exemptions and that it does not allow a private right of action.

According to labor and employment attorney Pam Devata of Seyfarth Shaw, “The Act also provides limited exceptions that allow employers to request or use credit information where a credit report is ‘substantially related to the employee’s current or potential job.’  This exception generally applies to those positions involving money-handling and other confidential job duties. For instance, employers may request credit information for employees in managerial positions that involve the direction and control of the business; employees who have access to financial information; employees with fiduciary duties to the employer; employees who have an expense account or corporate debit or credit card; employees with access to an employer’s nonfinancial assets valued at $2,005 or more (i.e., museum and library collections, prescription drugs, and other pharmaceuticals); and employees with access to confidential or proprietary business information. Notably, where an employer chooses to request credit information pursuant to the substantial purpose exception, it must disclose its intent to do so in writing to the employee or applicant.”

Violators will be subject to $300 fine per incident but will not face a private action from offended parties.

Connecticut now joins a growing list of states that have adopted similar measures including Oregon, Washington, Hawaii, Illinois, Maryland.

Employers note that this law will go into effect on October 1, 2011.

I know that mine might be an unpopular point of view in our industry, but I actually think that recently bills passed in Illinois, Maryland and Connecticut are effective models to curb the misuse of this background screening instrument.  While I believe that credit reports are an integral part of the screening process for some, it should not be a requirement for all positions.  Quite honestly, it is those that have been misusing these reports for positions where credit really shouldn’t be required that has caused the states to take these actions.  I feel like the exemptions that are carved out effectively allow those that should be conducting credit reports do so.  I also think that disallowing private action is fair to employers.

There, I’ve been holding that in for about a year. I feel better already.  Feel free to rip me and my position now.

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