Colorado Enacts First-of-its-Kind AI Rules, Despite Concerns Over Dampening Innovation

Colorado has enacted a new law aimed at preventing discrimination when artificial intelligence systems are used to make consequential decisions about consumers.

Senate Bill 205, signed into law Friday by Gov. Jared Polis, will add guardrails for companies utilizing AI technologies to make decisions related to employment, lending, housing and other areas impacting consumers when it goes into effect on February 1, 2026. While supporting the intent behind the bipartisan bill, Polis expressed reservations about potential impacts on Colorado's AI industry in a letter to lawmakers. He cited concerns that state-level AI regulation could "stifle innovation and deter competition in an open market."

The law does not take effect for over two years, which Polis said will allow time for any needed improvements before implementation. SB 205 requires companies to conduct bias audits and risk assessments on their AI systems and allows consumers to appeal certain decisions made by the technologies. It aims to increase transparency and accountability as generative AI gains broader use.

Consumer advocates argued the bill should have included stronger enforcement provisions, while many in Colorado's tech sector opposed the legislation, criticizing it as overly broad with vague requirements. The Colorado Technology Association, representing over 300 state technology companies, called the lawmaking process "rushed" with inadequate industry input in a letter to Polis.

However, the AI measures were influenced by model legislation supported by HR tech company Workday, which congratulated Colorado as taking "a critical first step" that other states may follow.

Colorado's law comes as the rapidly evolving capabilities of AI have sparked global debates around promoting responsible use while not hampering innovation. The European Union has proposed its own comprehensive AI rules, while similar legislation stalled this year in Connecticut amid opposition.

Polis and Colorado lawmakers aimed to get ahead of impacts with the new law, though concerns remain about compliance challenges from a patchwork of state-level AI regulations.

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