Colorado recently became the ninth state to prohibit employers from using credit information for employment purposes. In the last few years, eight other states have also passed laws which, subject to few exceptions, regulate ban employers’ ability to use credit information in making employment decisions. The nationwide trend towards banning employers’ use of credit history is expected to continue at both the state and federal level. Similar legislation has been introduced in several states, including Florida, New Jersey, New York and Pennsylvania.

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.”

If an employer relies, in whole or in part, on consumer credit information to take adverse action against the applicant or employee, the employer is to disclose that fact, and the particular information upon which the employer relies, to the applicant or employee. The employer is to make the disclosure to an employee in writing or to an applicant using the same medium as that of the application. Employers should note that these obligations are in addition to the employer’s disclosure and notice requirements under the federal Fair Credit Reporting Act (FCRA). Moreover, nothing in the new Colorado law imposes any liability on a person, including a consumer reporting agency, for providing an employer with consumer credit information.

The law takes effect from  1st of July 2013.