Colorado AI Act (SB24-205)

Summary

Colorado becomes the first U.S. state to enact comprehensive AI regulation with its Consumer Protections for Artificial Intelligence Act. This groundbreaking law specifically targets "high-risk AI systems" used in consequential decisions—think hiring algorithms, loan approvals, healthcare decisions, and insurance underwriting. Unlike broad federal proposals, Colorado's approach is surgical: it focuses on preventing algorithmic discrimination while creating clear obligations for AI developers and deployers. The law establishes a two-tier compliance system with different requirements based on your role in the AI supply chain, and notably includes a "reasonable care" standard that gives businesses flexibility in how they meet their obligations.

The Colorado Difference: What Sets This Law Apart

Colorado's AI Act stands out in the emerging U.S. regulatory landscape by taking a risk-based approach similar to the EU AI Act, but with uniquely American characteristics. While other states have focused on specific sectors (like New York City's hiring algorithm law), Colorado creates economy-wide rules for high-risk AI systems.

Key differentiators:

• Dual responsibility model: Separate obligations for AI developers vs. deployers, recognizing the complex AI supply chain
• Reasonable care standard: Unlike prescriptive EU regulations, Colorado uses a flexible "reasonable care" approach similar to traditional negligence law
• Consumer focus: Explicitly designed to protect Colorado residents as consumers, not just employees or citizens
• Impact assessment framework: Requires systematic evaluation of AI systems for discriminatory impacts before deployment
• State-level enforcement: Creates Colorado-specific enforcement mechanisms rather than waiting for federal action

Timeline and Key Dates You Need to Know

February 1, 2026: Full law takes effect

• All compliance requirements become mandatory
• Enforcement begins
• Penalties can be assessed

Throughout 2024-2025: Rulemaking period

• Colorado Attorney General develops detailed regulations
• Industry stakeholder engagement
• Guidance documents expected

Recommended preparation timeline:

• Q1 2025: Complete AI system inventory and risk assessment
• Q2 2025: Implement required governance processes
• Q3 2025: Conduct impact assessments for high-risk systems
• Q4 2025: Finalize compliance documentation and disclosures

Who This Resource Is For

Primary audiences:

• AI developers creating or significantly modifying AI systems used in Colorado
• AI deployers (businesses) using high-risk AI systems for consequential decisions affecting Colorado consumers
• Compliance teams at companies operating AI systems in Colorado
• Legal counsel advising clients on AI governance and state-level compliance

Secondary audiences:

• Policy professionals tracking state AI regulation trends
• Risk management teams evaluating AI-related legal exposure
• Data scientists and AI engineers needing to understand legal requirements affecting their work
• Privacy officers expanding their compliance scope to include AI governance

Industry focus areas:

• Financial services (lending, insurance, credit decisions)
• Healthcare (diagnostic tools, treatment recommendations)
• Employment (hiring, performance evaluation, termination)
• Housing (rental decisions, property valuations)
• Education (admissions, student assessment)

Compliance Essentials: Developer vs. Deployer Obligations

If You're an AI Developer

Core requirements:

• Conduct algorithmic impact assessments before release
• Provide detailed documentation to deployers about system capabilities and limitations
• Implement bias testing and mitigation measures
• Maintain records of system performance and updates
• Disclose known risks and recommended use parameters

If You're an AI Deployer

Core requirements:

• Complete impact assessments for your specific use case
• Provide clear disclosures to consumers about AI decision-making
• Establish governance processes for AI system oversight
• Implement human review mechanisms for consequential decisions
• Maintain audit trails and performance monitoring

Shared Obligations

• Reasonable care standard: Both developers and deployers must exercise reasonable care to avoid algorithmic discrimination
• Documentation: Maintain comprehensive records of AI system design, testing, and deployment decisions
• Incident response: Establish procedures for addressing discriminatory outcomes

Watch Out For: Common Compliance Pitfalls

Scope misunderstanding: The law applies to AI systems making "consequential decisions" affecting Colorado consumers—this is broader than just B2C relationships and can include B2B systems that ultimately impact consumers.

Multi-state complexity: If you operate in multiple states, Colorado's requirements may conflict with other jurisdictions' approaches. Plan for a complex compliance matrix.

Supply chain gaps: The developer-deployer distinction can be blurry with modern AI services. SaaS AI tools, APIs, and cloud AI services create compliance handoff points that need careful management.

Impact assessment timing: Assessments are required before deployment and after significant modifications. Define what constitutes a "significant modification" in your governance processes.

Consumer notification requirements: The law requires specific disclosures to consumers, but the format and timing requirements will be defined in forthcoming regulations—prepare for potential changes to customer-facing processes.