California Bans Employers From Using Credit Scores in Hiring Decisions

A new California bill prohibits most employers from using credit scores and credit history in making hiring decisions. The law goes into effect on January 1, 2012. California is only the seventh state to implement such a ban. Twenty others are considering doing so.

The Society of Human Resource Management conducted a study which found that about 60 percent of companies currently use credit history as a factor in the hiring process.

There are some exceptions to this ban. For instance, banks and law enforcement agencies may have a legal necessity to conduct employee credit checks, and will not be prevented from doing so.

Supporters of the bill argued that, in this economy, many job applicants have low credit scores or poor credit history (i.e. due to home foreclosure). Labor advocates argued that a poor credit score should not prevent an otherwise qualified applicant from being able to get a job.

Civil rights advocates argued that credit checks are sometimes used to disguise racial discrimination, because members of racial minorities tend to have lower credit scores.