Limit on payday loans receives an initial OK
Payday lenders would see their interest rates dramatically capped under a measure that won preliminary approval Thursday in the Colorado House.
While opponents of House Bill 1351 said it would put many of the state’s payday lenders out of business, proponents argued they are too predatory to allow them to continue business as usual.
Under current law, payday loans are limited to $500 and are due when borrowers receive their next paycheck, which can be up to a month. Annual percentage rates, however, can be as high as 520 percent.
That’s why proponents of the bill want to cap the rate at 45 percent, which is the maximum usury rate in most states.
Republicans who opposed the measure said the payday lenders should be left alone, because people who use their service usually are in desperate need of it because they can’t qualify for normal short-term loans from banks. Republican legislators agreed the interest rates are high, but they said consumers know what they’re getting into and should be free to choose for themselves.
“These businesses that practice payday lending, they’re no different than other businesses in the state,” said Rep. B.J. Nikkel, R-Loveland. “This is about personal responsibility. People can choose for themselves. They don’t need the government ... telling them whether or not they should use these businesses.”
Rep. Larry Liston, R-Colorado Springs, was so angry about the measure he nearly lost his voice in arguing against it. Liston called the bill a travesty and an outrage, saying the free market should reign.
“The heavy hand of big government and the do-gooders are trying to go out and save the world for people who know and fully understand what they’re doing,” Liston shouted on the House floor. “Let’s not take away freedom of choice and freedom to go out and do something like this. These are real people who are going to be impacted. They will have no place to turn. This is an outrage.”
Liston and other Republicans argued that Democrats don’t like payday lenders because they have found a business model that is profitable. Democrats, however, said that model is based on taking advantage of people who are desperate for money.
“Yes, this is a profitable business,” said Rep. Max Tyler, D-Golden. “However, let’s look at that business and where they make their profit. This model of profitability takes advantage of people who don’t understand.”
Rep. Mark Ferrandino, D-Denver, said payday lenders take advantage of people who get trapped in a cycle of debt. He said oftentimes such people pay off one payday loan with another, racking up interest charges that ultimately outpace their original loan.
Later, when people finally get out of debt, the lenders try to draw them back in, he said.
“(The payday) industry says this is for emergency cash, but that’s not really the case,” Ferrandino said.