Colorado Prohibits Using Credit Checks for Employment Screening

Colorado is joining 8 other states that prohibit employers from using credit information for employment purposes. This law-named the Employment Opportunity Act, Colo. Rev St 8-2-126- will go into effect July 1, 2013.

The new law will prohibit employers from using consumer credit information. This includes a consumer’s credit worthiness, credit standing, credit capacity or credit score in “evaluating a person for employment, hiring, promotion, demotion, reassignment, adjustment in compensation level, or retention as an employee.”

This law will apply to private employers with 4 or more employees.

Employers are prohibited from using a person’s consumer credit information unless that information is directly related to the person’s current or potential job.

The statute defines the language to mean one of two types of positions:
1. A position constituting executive or management personnel (or officers or employees who constitute professional staff to executive and management personnel) and which involves one or more of the following:
• sets the direction or control of a business, division, unit or an agency of the business
• owes a fiduciary responsibility to the employer
• has access to customers’, employees’ or the employer’s financial information; or
• has the authority to make payments, collect debts or enter into contracts.

2. A position that involves contracts with defense, intelligence, national security, or space agencies of the federal
government.Two types of employers are generally exempt from the law’s prohibitions:
(1) banks or financial institutions
(2) employers who are required by law to procure consumer credit information.

These employers are permitted to obtain and use credit information for all their employees, regardless of specific positions or responsibilities.

The new Colorado law also expands requirements for employers wishing to take adverse action in whole or in part based on information in a credit report. Any employer that relies, in whole or in part, upon consumer credit information to take any adverse action against an applicant or employee, must make a written disclosure to the employee or applicant explaining that it has relied on credit information to make an adverse action and noting the specific information which the employers relied. The law states the disclosure must be made in writing or “using the same medium in which the application was made”. This is different and more rigid than the Fair Credit Reporting Act (FCRA) regulations about adverse actions.

The Colorado Division of Labor will be enforcing this new law, and violations can incur civil penalties to be awarded to the defending consumer in the amount of $2,500.

Colorado joins California, Maryland, Connecticut, Hawaii, Illinois, Washington, Oregon and Vermont in prohibiting the use of credit checks to screen employees.

It’s advisable for Colorado employers who utilize credit reports in their hiring process to review their procedures to ensure full compliance by July 1st, 2013.

~~Susan McCullah is the Product Development Director for Data Facts, Inc, a 23 year old Memphis based company. Data Facts Inc -an NAPBS accredited company- is a leading provider of pre-employment screening solutions. Check our our website for a complete explanation of our services.