Colorado Restricts use of Credit reports for Employment

Effective July 1, 2013, Colorado will join California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont and Washington to become the ninth state to pass legislation restricting the use of credit reports in the applicant screening process.  There are approximately 20 other states that have similar pending legislation so we anticipate this trend to continue in the near future.  In response, A-Check is advising Colorado employers that utilize credit reports in their applicant screening process to evaluate and reassess their practices and procedures prior to the law’s effective date including a review of your background screening forms, including but not limited to the Consumer Disclosure/Authorization and Adverse Action notices, to incorporate Colorado’s requirements.

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What Does this Mean to Colorado Employers?

Who?   The law applies to private sector employers with four or more employees.

Exemptions: Banks and/or Financial Institutions and employers who are required by law to procure consumer credit information can continue to utilize credit reports in their hiring process provided they abide by the new law’s additional adverse action requirements – discussed later in this document.

What?  In general, the new Colorado law prohibits employers from using “consumer credit information” for employment purposes unless the information is “substantially related to the employee’s current or potential job” unless they are one of the exception employers.

Substantially Related to the Position Defined:

1. A position that constitutes executive or management personnel or their immediate staff with the following job responsibilities:
   • sets the direction or control of a business, division, unit or an agency thereof;
   • 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.

How?  How can a Colorado Employer stay in compliance if using a Credit Report?

1. Ensure the positions you are utilizing credit reports for meet the criteria defined by the legislation.
2. Provide the job candidate detail regarding the “bona fide purpose” for using credit reports for the position they are applying for.  A-Check recommends you utilize your Consumer Disclosure and Authorization to communicate your purpose to the applicant however, the law is silent as to when this disclosure must be made and does not define the term “bona fide purpose.”
3. Adverse Action Requirements: The new CO law also expands requirements for employers when taking adverse action based on information in a credit report. Under this law, a Colorado employer is required to (1) provide disclosure to the applicant that it relied on credit information to make an adverse decision, (2) must note the specific information which the employer relied upon, and (3)  must use the same media in which the application was made.   Although the law does not detail when the disclosures must be made, in order to comply with the Fair Credit Reporting Act as well, A-Check recommends that employers do so prior to making any employment decisions.

A-Check Summary

Unless, (1) you are 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 meets the additional requirements detailed above; an employer may not require an employee to consent to a request for a credit report that contains information about the employee’s credit score, credit account balances, payment history, account balances and the like as a condition of employment.

A-Check recommends two considerations when developing your policy and procedures to cover this aspect of your screening:

1. The current focus of the EEOC is on employment hiring practices that create potential barriers of employment, including the use of credit information in employment. Therefore you may consider that when utilizing consumer credit information to make adverse hiring decisions to make it policy to afford the applicant or employee an opportunity to explain any unusual circumstance that led the occurrence. (e.g. error, lay off, identity theft, medical expenses etc. ).
2. The Consumer Reporting is quickly changing trending towards increases in regulation.  All employers are advised to be aware of their policies in this respect and to keep abreast of developments in this area of the law.

If you have any questions regarding the contents of this document or for a review of your current Consumer Authorization and Disclosure form, please contact A-Check’s Compliance Department at 877.345.2021 or via email at compliance@acheckamerica.com.

View this Compliance Update as a PDF

For additional information, see article  by Seyfarth Shaw Labor Attorneys Pam Q. Devata and Natascha B. Riesco.