Colorado’s New Credit Background Check Law to Go Into Effect on July 1, 2013

Colorado recently passed a new law regulating an employer’s use of credit background checks for applicants and employees. The new law goes into effect on July 1, 2013. Remember that Colorado state law is applicable to (a) an employment position in Colorado and/or (b) an applicant or employee who resides in Colorado. Under the new Colorado law, an employer should not use consumer credit information for employment purposes unless one of the following circumstances applies:

1. The employer is a bank or financial institution.
2. The report yielding the information is required by law.
3. The report is substantially related to the employee’s current or potential job and the employer has a bona fide purpose for requesting or using information in the credit report.  In addition, the employer’s purpose must be substantially related to the employee’s current or potential job and be disclosed in writing to the employee.

Credit history information is substantially related to the job if the position:

1. is executive or management level or constitutes professional staff to executive and management personnel and involves one or more of the following:
   1. setting the direction or control of a business, division, unit, or an agency of a business;
   2. a fiduciary responsibility to the employer;
   3. access to customer, employee, or employer financial or personal information, other than information customarily provided in a retail transaction; or
   4. the authority to issue payments, collect debts, or enter into contracts; or
2. involves contracts with defense, intelligence, national security, or space agencies of the federal government.

As an employer, if you do not fall into one of the three categories outlined above, then you should not be performing credit checks at all on applicants or employees in Colorado (i.e., those applying for a Colorado position and/or those applicants or employees residing in Colorado). 

Employers that do fall into one of the three categories outlined above (and, therefore, are allowed to request credit background check information) are required to disclose in writing to applicants or employees their intent to use a credit background check report. We recommend doing so in a disclosure & authorization consent form.  Unfortunately, it is unclear whether the new Colorado statute requires (a) only a general statement of the employer’s intended use or (b) a customized statement of the employer’s intended use that is specific for each applicant or employee (similar to the California requirement (in Cal. Civ. Code Section 1785.20.5(a)) that employers identify the specific California code section authorizing the employer to conduct a credit background check). Because the Colorado state statute does not expressly require detailed elements, a general statement of the intended use may be sufficient.

Additionally, if an employer relies, in whole or in part, on consumer credit information to take adverse action, the employer must disclose that fact, and the particular information upon which the employer relies, to the applicant or employee. The method of disclosure will vary, depending on whether the individual is an employee or applicant. Employers must make the disclosure to employees in writing. For applicants, however, employers must make the disclosure using the same medium in which the application was made. Therefore, if you are using an online electronic application, the disclosure must be made electronically (e.g., via email). 

When consumer credit information is substantially related to the applicant’s or employee’s current or potential job and the employer is contemplating taking adverse action against the applicant or employee, the employer may inquire further of the applicant or employee, to give him or her the opportunity to explain any unusual or mitigating circumstances that could make the consumer credit information attributable to some factor other than poor money management skills, including the following:

• a layoff;
• an act of identity theft;
• medical expenses;
• military separation;
• death;
• divorce or separation in the employee’s family;
• student debt; and
• a lack of credit history.

Similar to the 2012 Equal Employment Opportunity Commission (EEOC) Guidance requirement for an individualized assessment, employers may make this inquiry during the reasonable waiting period—after the pre-adverse action letter but before the adverse action letter has been sent.

Also much like the 2012 EEOC Guidance’s treatment of employer contemplations of applicant or employee explanations for criminal convictions, the new Colorado statute lacks guidance for employers on how to make a decision as to whether the poor credit background is attributable to events beyond the applicant’s or employee’s control (e.g., layoff, error, etc., which the statute implies but does not say should not be held against the applicant or employee) or poor money management skills (which the statute implies may be held against the applicant or employee).

James R. Silvers is an associate in the Greenville office of Ogletree Deakins and is a member of the Ogletree Deakins Background Check Advice Team, which can be reached at backgroundcheckadvice@ogletreedeakins.com.