Can Employers Run Credit Reports in California?

Considering running a consumer credit report on a job applicant or employee? Not so fast. In California, credit reports for employment purposes are generally prohibited. There are exceptions for certain employees, such as those who have financial authority to act on behalf of the company, or regular access to certain cash or private information, among others. However, even when a credit report is allowed, there are still many specific rules employers have to follow. We break it all down for you here:

What is a credit report?

A credit report includes “information by a consumer credit reporting agency” bearing on someone’s “credit worthiness, credit standing, or credit capacity” that is used for evaluating an applicant for employment, promotion, reassignment, or retention. This is different from a general background check, often focusing on criminal history (which has its own set of very specific rules in California).

When am I allowed to run a credit report?

An employer might want to run a credit report for an employee or applicant to gauge financial responsibility and trustworthiness. However, in California, employers are only permitted to use these reports for specific roles outlined in Labor Code section 1024.5:

• Certain Managers: A managerial position (as defined in the executive exemption of IWC Wage Order No. 4)
• DOJ: A position in the state Department of Justice
• Law Enforcement: That of a sworn peace officer or other law enforcement position
• Required by Law: A position for which the information contained in the report is required by law to be disclosed or obtained
• Regular Access to Sensitive Information: A position that involves regular access, for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, to all of the following types of information of any one person:
  • Bank or credit card account information
  • Social security number
  • Date of birth
• Financial Authority: A position in which the person is, or would be, any of the following:
  • A named signatory on the bank or credit card account of the employer
  • Authorized to transfer money on behalf of the employer
  • Authorized to enter into financial contracts on behalf of the employer
• Access to Confidential/Proprietary Information: A position that involves access to confidential or proprietary information, including a formula, pattern, compilation, program, device, method, technique, process or trade secret that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who may obtain economic value from the disclosure or use of the information, and (ii) is the subject of an effort that is reasonable under the circumstances to maintain secrecy of the information
• Regular Access to $10K Cash: 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

What steps must I take?

Even when you are allowed to run a credit report, additional requirements apply, including Fair Credit Reporting Act (FCRA) rules. You must obtain prior written consent of the employee/applicant, and provide a stand-alone notice that:

• Informs that a credit report will be used
• Gives the basis under Labor Code Section 1024.5 (i.e., the exception that applies)
• Provides the source of the report
• Include a box for the person to check to receive a copy (which must be furnished if requested, at no charge)

Before taking adverse action, you should provide the employee a copy of the report and a Summary of Rights under the FCRA.

If you deny the position or take adverse action, in whole or in part, based on the credit report, the employer must provide notification of that in an adverse action notice. Your adverse action notice must include:

• The name, address, and phone number of the consumer reporting company that supplied the report,
• a statement that the company that supplied the report did not make the decision to take the unfavorable action, and can't give specific reasons for it, and
• a notice of the person's right to dispute the accuracy or completeness of any information the consumer reporting company furnished, and to get an additional free report from the company if the person asks for it within 60 days.

Employers may access more information on FCRA requirements, including confidentiality requirements.