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Money & the Law: Bill limits employers' use of credit reports

By: JIM FLYNN
April 26, 2013
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After years of debating the issue, the Colorado General Assembly has passed and sent to the governor for signature a bill (SB13-018) restricting the right of employers to use consumer credit reports in making employment-related decisions — hiring, firing, demotions, promotions, reassignments, etc.

As is now the trend, this new law has been given a catchy name — the “Employment Opportunity Act.” Its purpose seems to be to allow people with not-so-good credit to get jobs — as long as those jobs don’t involve anything the General Assembly considers very important.

The act prohibits an employer (other than a law enforcement agency) from requesting or using consumer credit information for employment purposes unless the information is “substantially related to the employee’s current or potential job.” Credit information will be “substantially related to the employee’s current or potential job” if the job rises to the level of executive or management personnel, or professional staff to executive or management personnel, and the job involves control of a business; fiduciary responsibilities; access to personal or financial information; or authority to issue payments, collect debts or enter into contracts. (Since all employees owe a fiduciary duty to their employer, this exception to the prohibition on using credit information for employment purposes would seem to apply to all executive or management personnel and their professional staff, regardless of anything else.)

Credit info will also be “substantially related to an employee’s current or potential job” if the job — however menial  — “involves contracts with defense, intelligence, national security or space agencies of the federal government.”

A confusing section of the act (one of many) appears to say banks and other financial institutions can obtain credit reports for all employees, but they can only use the information if the employee’s job falls into the executive/management or professional staff to executive/management category described above.

The act goes on to say that if obtaining and using information from a credit report is allowed, an employer may (but is not required to) give an employee or prospective employee an opportunity to explain “unusual” information in a report attributable to such things as layoffs, errors in the report, identity theft, medical expenses, death, divorce, military separation, student debt, etc.

If credit information is used to make a decision adverse to an employee or prospective employee, the employer must disclose this fact and the information relied on.

The Colorado Division of Labor will be in charge of enforcing the act. Someone claiming injury because of a violation of the act is entitled to an administrative hearing and, if the prevailing party, recovery of a civil penalty not to exceed $2,500. The act goes into effect July 1.

Employers wanting to use consumer credit information when making employment-related decisions must also comply with a federal law known as the Fair Credit Reporting Act, which contains other restrictions and procedural requirements.  

Jim Flynn is a private attorney
at Flynn Wright & Fredman LLC.
Reach him at moneylaw@
jtflynn.com.

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