Effective July 2013, Colorado is one of the states that strictly limit the circumstances in which employers may use credit reports in making employment decisions. Like employers in other states, Colorado employers must follow the notice and authorization requirements of the federal Fair Credit Practices Act (FCRA), to make sure applicants and employees know when their credit reports are used and have an opportunity to correct errors in those reports. (For more information on what the FCRA requires, see our article Can Prospective Employers Check Your Credit Report?)
In Colorado, however, employers may check an applicant’s or employee’s credit report or consider credit history in making job decisions only in limited situations.
Colorado Restrictions on Using Credit Information
Colorado employers may not use credit information for employment purposes unless the information is substantially related to the job (see below). Employers may not make decisions about hiring, firing, retention, demotion, promotion, reassignment, or compensation based on the employee’s or applicant’s credit information. Credit information refers to any written or other communication that bears on the subject’s credit standing, credit history, credit capacity, or creditworthiness.
Employers with fewer than four employees are not covered by the law.
Exceptions for Certain Employers and Employees
Although Colorado generally bans employers from considering credit history in making employment decisions, there are a handful of exceptions. An employer may require applicants and employees to authorize the employer to view their credit reports if the employer:
- is a bank or financial institution, or
- is required by state or federal law to use credit history for employment purposes.
In addition to these exceptions, the law allows employers to check or use credit history if that information is substantially related to the job. However, this exception applies in only two circumstances. Employers may check credit information if the job involves a contract with the federal departments of defense, intelligence, national security, or space. Employers may also use credit information if the job is an executive, managerial, or officer position (or professional administrative staff to such positions), and involves at least one of these duties:
- setting the direction or control of a unit, agency, division, or the entire business
- fiduciary responsibility to the employer
- access to the financial information of customers, employees, or the employer (beyond the information routinely provided in retail transactions), or
- the authority to enter into contracts, collect debts, or issue payments.
If one of these exceptions applies and the employer relies on credit information to make a decision, it must follow certain procedural rules. An employer who plans to take adverse action based on credit information must notify the applicant or employee, disclosing the particular information that led to the decision. The law also encourages employers to give employees and applicants an opportunity to explain why potentially disqualifying credit information is not a result of poor financial management, but was instead caused by a layoff, identity theft, medical expenses, divorce, or similar circumstances.