The Rules of the Road: California’s Limits on Employment Credit Checks
What every HR professional and job seeker needs to know about California’s credit privacy acts
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In California, the answer is a definitive yes. Unlike many other states where employers have broad discretion to review an applicant's financial history, California law significantly curtails the use of credit checks in the hiring process. These protections, primarily established under Assembly Bill 22 and codified in Labor Code Section 1024.5, make credit checks the exception rather than the rule.
The General Prohibition
Since January 1, 2012, most California employers are prohibited from obtaining or using consumer credit reports for employment purposes. This includes not only initial hiring but also decisions regarding promotions, reassignments, or retention. The law was designed to prevent "credit discrimination," acknowledging that personal financial struggles—often caused by medical emergencies or economic downturns—do not necessarily reflect an individual’s professional integrity or job performance.
The Narrow Exceptions
An employer may only run a credit check if the position falls into one of several specific, legally defined categories. These exceptions generally focus on roles where financial stability is directly relevant to the job's duties. Permitted categories include:
Managerial Positions: Specifically those that qualify for the "executive exemption" under California wage and hour laws.
Law Enforcement: Positions in the State Department of Justice or sworn peace officers.
Financial Oversight: Roles where the employee is a named signatory on business bank accounts, authorized to transfer money, or enters into financial contracts on the employer's behalf.
Sensitive Data Access: Positions with regular access to personal information (SSNs, dates of birth, and bank account numbers) for purposes other than routine retail credit card processing.
High-Value Assets: Roles involving regular access to $10,000 or more in cash during a workday.
Proprietary Information: Positions that provide access to trade secrets or confidential/proprietary business information.
Mandatory Disclosure Requirements
Even when a position meets one of the exceptions above, the employer cannot simply pull a report in secret. Under the California Consumer Credit Reporting Agencies Act (CCRAA), the employer must provide a written notice to the applicant before the report is requested.
This notice must explicitly state the specific "permissible purpose" under the Labor Code that justifies the check (e.g., "This position involves access to trade secrets"). Furthermore, the notice must include a checkbox allowing the applicant to request a free copy of the credit report. If the applicant checks this box, the employer must ensure a copy is sent to them at the same time the employer receives it.
Consequences of Adverse Action
If an employer decides not to hire an applicant based even partially on information in a credit report, they must provide a formal "adverse action" notice. This notice must identify the credit reporting agency used and inform the applicant of their right to dispute any inaccuracies. Failure to follow these strict procedural hurdles can expose California employers to lawsuits and statutory penalties.
Information published to or by The Industry Leader will never constitute legal, financial or business advice of any kind, nor should it ever be misconstrued or relied on as such. For individualized support for yourself or your business, we strongly encourage you to seek appropriate counsel.
