Hirease Blog

Colorado is the 8th State to Ban Credit Reports in the Hiring Process

Posted by Marketing Hirease on May 3, 2013 11:00:00 AM

credit banCredit Information legislation when it applies to using it in the realm of employment has been radically increasing in the US. Colorado is the newest state to join 8 others in the prohibition of using credit information when considering an applicant for employment purposes. The law Colorado Revised Statute 8-2-126, also known as “Employment Opportunity Act",  will go into effect on July 1, 2013 after the legislation was enacted and signed into law on April 13, 2013.

This legislation is to be applied to employers with four or more employees and contains exemptions for two types of employers. The first exception is for banks and financial institutions and the second is for employers who are required to procure consumer credit information.

For most employers, this ban on the use of credit information will apply unless that information is “substantially related to the employee’s current or potential job”. This wording is defined in the law and is meant for two different positions:

Exception 1:

A position that constitutes 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

Exception 2:

A position that involves contracts with defense, intelligence, national security, or space agencies with-in the federal government.

If an employer thinks there is a need for a credit report because of a “substantially related to the employee’s current or potential job”, two additional requirements must be meet.  The first is that the employer must have a “bona fide purpose” for requesting or using the information and, second, the employer must divulge said bona fide purpose to the applicant or employee.

If said employer does not fall under one of the three scenarios that allow a credit report to be considered, they cannot require an applicant or employee to consent to a request for a credit report that contains credit score, account balances and payment history as a condition of their employment.

New Adverse Action Requirements

The law also enacts new requirements when an employer plans to take adverse action and considered a credit report in making that decision.   If adverse action is taken based in whole or in part because of a credit report, the employer must make a written disclosure to the individual to notify that their credit information was considered and precisely note upon which information the employer relied on.  This requirement is more burdensome than what is required under the federal Fair Credit Reporting Act (FCRA).

With this new law also come new penalties for non-compliant employers who violate or break statute 8-2-126, and are determined by the Colorado Division of Labor with civil penalties up to $2500 per occurrence.

With Colorado joining Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont and Washington and similar legislation pending in other states, it is recommended that all employers should be aware of their policies in respect to using a credit report for hiring purposes. We also encourage you to stay up-to-date on all developing and pending laws in your state to make sure you are remaining compliant.

While employers in Colorado that do use credit reports are given time to reassess their current procedures, employers in New York City should be on the lookout for a possible passing of a similar bill. New York City has started to consider banning credit reports for employment purposes and we will keep you informed on any changes or passed legislation that happens in the future.

Topics: Hirease, Law Changes, In The News

Subscribe to Email Updates

Follow Hirease!

Popular Posts

Browse by Tag