October 8, 2024

California’s Governor, Gavin Newsom, has signed a new bill that will significantly impact credit checks performed as part of the employment background check process. It bars medical debts from being included in credit reports acquired for employment screening reports. This change in screening regulations aims to protect applicants and employees from the impacts of medical debt on their employment prospects.

The newly signed bill is SB 1061, making California the eighth state to prohibit credit reporting of medical debts. This new regulation means employers cannot include medical debts in credit checks during the employment screening process. Furthermore, they cannot consider these debts when judging an applicant or employee’s financial responsibility and resulting suitability for a position.

The bill’s co-sponsor, Attorney General Rob Bonita, admitted that many employers may not consider medical debt a compelling issue. As such, they may not consider it a reliable indicator of creditworthiness. Attorney General Rob Bonita remarked, “Medical debt is often unforeseen and not a reliable indicator of financial risk, yet it can unfairly prevent consumers from getting loans, renting an apartment, or getting a job. This kind of debt on a credit report reflects the financial burden of illness, not an inability to manage finances, including payment of other bills, or posing a credit risk.”

This change could have notable implications for those seeking employment in fields requiring detailed background checks, such as the financial industries. Employers will likely continue running these checks despite the shift in what they may consider in credit reports. They may focus on other aspects of an individual’s creditworthiness and financial responsibility to determine their suitability for a position.

For many using employment background checks, this change will not have an impact on their screening process. Under California’s existing law, employers may acquire credit reports for employment decisions if the position meets criteria that include the following:

  • The position would have regular access to an individual’s proprietary financial information;
  • Managerial positions;
  • The position has access to trade secrets or other confidential information;
  • Positions with access to $10,000 or more in cash:
  • The position would place the individual as a signatory on the employer’s bank or credit accounts, have the authorization to transfer funds, or the authority to enter financial contracts;
  • Sworn peace officers and other law enforcement or positions within California’s Department of Justice;
  • Any positions that require credit information by law;
  • Employers must give individuals a suitable notice indicating the legally permissible reason before requesting a report. The individual must also receive the option to request a copy of it.
Disclaimer:
Information provided here is for educational and informational purposes only and should not constitute as legal advice. We recommend you contact your own legal counsel for any questions regarding your specific practices and compliance with applicable laws.

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