Last year I lost my job and then my home to foreclosure. I avoided bankruptcy, but my credit is horrible. I’m worried my bad credit will hurt my job prospects because I recently interviewed for a job and was asked to consent to a credit check. Is this legal?


Yes, but the federal government and many states are considering legislation that would limit employers’ ability to use credit checks to screen job applicants. In the last legislative session, California Assembly Bill 482 sought to restrict employers, other than certain financial institutions, from obtaining a consumer credit report for employment purposes except in certain circumstances. Governor Schwarzenegger vetoed the bill, but a new bill is likely to be introduced in 2011 and may have a better chance to become law due to Democratic control of the state’s Legislative and Executive branches.

Currently, California employers who wish to conduct background checks on prospective employees must comply with the federal Fair Credit Reporting Act (FCRA), the California Investigative Consumer Reporting Agencies Act. (ICRAA), and the California Consumer Credit Reporting Agencies Act (CCRA). Each of these acts have distinctly different requirements.

The FCRA applies to “consumer reports,” including credit checks used for the purposes of “hiring, promotion, retention, or reassignment of employees.” The FCRA applies only when an outside screening company prepares an employment background check. When such a third party compiles a report, the FCRA requires that:

  • you are notified that an investigation may be performed;
  • you are given the opportunity to consent; and
  • you are notified if information in the report is used to make an “adverse” decision about you.

The employer must provide a prospective employee a “pre-adverse action notice” along with a copy of the background report before an adverse action is taken. For job applicants, an “adverse action” means the employer has decided not to hire you based on the information in the report. Employers are also required to provide a second notice after an adverse action, telling the potential employee how to dispute inaccurate or incomplete information. However, if the employer does not use a third party to conduct the background check, but compiles the report itself, the provisions of the FCRA do not apply.

California law is broader in scope than the FCRA because it also covers employers who conduct background checks themselves. Under California law, an employment background check is called an “investigative consumer report” (ICR). An ICR covers your “character, general reputation, personal characteristics, or mode of living” obtained through “any means”, but does not include credit reports. If a California employer wants to see your credit report as part of an employment background check, that report is governed by the CCRAA, which allows an employer to obtain a copy of your credit report for “employment purposes.” The CCRAA requires your written permission for a credit check and the credit report cannot include any information about you that would violate equal employment opportunity laws, such as your age, marital status, race, color, or religion. Before a background credit check is conducted by a screening company, you should receive a notice that includes the purpose of the report, the name, address, and telephone number of the screening company, a summary of your rights, and a box to check if you want a copy of your report. The report may come from the employer or from the screening company.

Starting January 1, 2012, California law will not require an employer who conducts a background check in-house to give you the same detailed notice that is required when an outside agency performs a background check. However, you will have the right to receive a copy of any public records an outside agency uses in compiling the report. An employer must also give you the Internet website address or telephone number of the screening company. This new law also requires the screening company to post its privacy practices on the company’s website. If the company does not have a website, you may request that a copy of the privacy policy be mailed to you.

Because of the complexity of the laws regarding background checks, it is always a good idea to get a copy of any background check or credit report that an employer may rely on. This will provide the opportunity to correct any errors in the report and explain any extenuating circumstances to your prospective employer.
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