Colorado to rewrite 2024 AI law, narrow high-risk rules

Colorado lawmakers plan to repeal SB24-205 and replace it with SB26-189, narrowing the state’s AI rules to systems used in high-stakes decisions. The draft targets automated tools that process personal data to produce outputs like predictions, scores or rankings.

SB26-189 would apply when automated decision-making tools affect employment, education, housing, lending, insurance, healthcare and access to government services. The bill rescinds the broader 2024 statute and reenacts requirements limited to those specified outcomes.

Under the draft, developers of covered systems must provide documentation explaining how models work, the data inputs they use, known limitations and material updates. Companies that deploy such systems must notify consumers when an AI system influenced an outcome, provide plain-language explanations for adverse decisions, allow individuals to access and correct their data and offer an option for human review.

The 2024 law included requirements for bias assessment and mitigation across uses such as hiring, lending and housing. Technology companies and industry groups argued the earlier law placed heavy compliance obligations on developers and deployers.

In April, xAI, an AI company founded by Elon Musk, sued Colorado seeking to block the 2024 measure before it took effect. The Department of Justice later sought to intervene in the litigation.

Cody Barela, a partner at Armstrong Teasdale, described the industry compliance argument as valid, pointing to the potential for broad obligations to delay AI development.

Lawmakers who drafted SB26-189 described it as a narrower framework intended to protect consumers while imposing more limited duties on companies. The bill text defines the types of outputs and processing that would trigger the law and clarifies documentation and notification responsibilities.

Lawmakers in New York and California have proposed similar rules focused on high-risk AI systems, and federal officials have indicated interest in preempting some state laws. If enacted, SB26-189 would take effect Jan. 1, 2027, giving companies more than two years to prepare for the requirements.