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Colorado Limits the Use of Credit Reports for Employment Purposes

July 3, 2013

Colorado employers are now limited in their use of individuals’ credit information for employment purposes, pursuant to the new Colorado Employment Opportunity Act (Senate Bill 13-018, Effective July 1, 2013). 

The following provides important information regarding employers’ obligations under this new law.

1.   Covered Employers and Information.

This new law restricts most Colorado employers with four or more employees (excluding state or local law enforcement agencies) from obtaining and using individuals’ “consumer credit information” for “employment purposes.”  

“Consumer credit information” is defined as written, oral or other communication of information bearing on an individual’s credit worthiness, credit standing, credit capacity or credit history.  It includes a credit score, but does not include the address, name or date of birth of an employee associated with a social security number. “Employment purposes” is defined as evaluating a person for employment, hiring, promotion, demotion, reassignment, adjustment in compensation level or retention as an employee.

2.   Restrictions Under This New Law.

Employers cannot require applicants or employees to consent to a request for an employee’s credit report as a condition of employment unless:

(a)   the employer is a bank or financial institution;

(b)   the credit report is required by law; or

(c)   the report is: (i) substantially related to the applicant’s or employee’s current or potential job; and (ii) the employer has a bona fide purpose for requesting or using the information in the credit report that is substantially related to the applicant’s or employee’s current or potential job, and it is disclosed in writing to the applicant or employee.

Employers also cannot use individuals’ consumer credit information for employment purposes unless the information is substantially related to the applicant’s or employee’s current or potential job.

Information is substantially related to an applicant’s or employee’s current or potential job under this new law if the information contained in a credit report is related to the position because:

(i)   the position constitutes executive or management personnel or officers, or employees who constitute professional staff to executive and management personnel, and the position involves one or more of the following:  (A) setting the direction or control of a business, division, unit or an agency of a business; (B) a fiduciary responsibility to the employer; (C) access to customers’, employees’ or the employer’s personal or financial information other than information customarily provided in a retail transaction; or (D) the authority to issue payments, collect debts or enter into contracts; or

(ii)   the position involves contracts with defense, intelligence, national security, or space agencies of the federal government.

When consumer credit information is substantially related to the applicant’s or employee’s current or potential job, an employer may inquire further of the applicant or employee to give him or her the opportunity to explain any unusual or mitigating circumstances where the credit information may not reflect money management skills but rather is attributable to some other factor, including a layoff, error in the credit information, act of identity theft, medical expense, military separation, death, divorce, or separation in the employee’s family, student debt or lack of credit history.

If an employer relies, in whole or in part, on credit information to take adverse action regarding the applicant or employee whose information was obtained, the employer must disclose this fact, and the particular information upon which the employer relies, to the affected individual, in writing (or to an applicant using the same medium in which the application was made).

3.   Remedies Under This New Law.

Individuals who are injured by a violation of this new law may file a complaint with the Colorado Division of Labor, which will investigate, conduct a hearing, issue findings and may award civil penalties of up to $2,500.

4.   Next Steps

Colorado employers that conduct background checks on employees or applicants should: (a) review the positions for which they may require individuals to undergo a credit check, as part of their background check process, and the limited bases under which such credit checks are permissible under this new Colorado law; and (b) ensure that they only request and use credit information in making employment decisions for permissible positions.

Employers that plan to request a credit report under this new Colorado law on the grounds that the report is substantially related to an applicant’s or employee’s current or potential job position will also need to disclose to the applicant or employee in writing the bona fide purpose for requesting the credit report.  Employers may wish to include this disclosure together with the disclosure and authorization they must already provide to individuals under the federal Fair Credit Reporting Act to obtain their consumer credit report for employment purposes. 

Additionally, if the employer plans to take adverse action against an applicant or employee based a consumer credit report, the employer must disclose the information from the report that it is relying upon to the applicant or employee in writing.  This requirement is in addition to other adverse action disclosures that are required under the federal Fair Credit Reporting Act when employers take adverse action based on reports obtained from consumer credit reporting agencies.  

Please do not hesitate to contact any of our attorneys if you have any questions regarding this new Colorado law, or your company’s obligations generally when conducting background checks and procuring and using information under the federal Fair Credit Reporting Act and other states’ laws.