Effective July 1, 2013, Colorado becomes the ninth state to restrict an employer’s right to obtain and use credit information for making employment decisions. Colorado joins California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont and Washington.

 Under Colorado’s new law, the key question a covered employer will have to ask before requesting and using consumer credit information for an employment purpose is whether the information sought is substantially related to the employee’s current or prospective position. A covered employer cannot require an employee to consent to a background check containing credit information unless: (1) the employer is a bank or financial institution; (2) the report is required by law; or (3) the report is “substantially related to the employee’s current or potential job,” and the employer has a bona fide purpose for such information, and this information is disclosed in writing to the employee. Further, such information can be used only if it is “substantially related to the employee’s current or potential job.”

The statute provides that the phrase, “substantially related to the employee’s current or potential job,” means the information in the credit report is related to the position for which the subject is being evaluated, because the position is one for executive or management level personnel or officers,  or employees who constitute professional staff to executive and management personnel, and the position involves one or more of the following:

  • Setting the direction or control of a business, division, unit, or an agency of the business;
  • A fiduciary responsibility to the employer;
  • Access to customers, employees, or the employer’s personal or financial information, other than information customarily provided in a retail transaction;
  • The authority to issue payments, collect debts, or enter into contracts; or
  • Involves contracts with defense, intelligence, national security, or space agencies of the federal government.

When consumer credit information can be obtained and used, an employer may inquire further of the employee to provide the individual with an opportunity to explain any unusual or mitigating circumstances where the consumer credit information may not reflect money management skills, but is rather attributable to another factor, such as 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. Further, if the employer chooses to rely on such information and take an adverse employment action, the employer must disclose that fact and the particular information upon which the employer relies to the employee in writing, using the same medium in which the application was made. The notice requirement must be coordinated with the federal Fair Credit Reporting Act’s pre-adverse and adverse action requirements. 

An aggrieved individual can file a complaint with the state division of labor, which can award civil penalties up to $2,500.