Colorado House narrowly passes payday loan bill
Payday lenders who don’t want to see their interest rates dramatically cut will turn their attention to the Colorado Senate.
That’s because the House narrowly approved a measure Monday to cap their annual rates at 45 percent. Currently, they can be as high as 520 percent.
Rep. Mark Ferrandino, D-Denver, who introduced House Bill 1351, persuaded just enough lawmakers to approve capping how much the more than 600 payday lenders in the state can charge in interest.
Ferrandino said the industry isn’t designed to help people get out of debt, but encourages them to get into a cycle of debt.
Opponents said the measure, which passed 33–31, is a necessary tool for people, particularly during tough economic times.
“This is a business issue for some and a morality issue for others,” said Rep. Cheri Gerou, R-Evergreen. “I can’t take a tool away from our constituents. The first quarter foreclosures are up again. People are hurting. People are in trouble. Regardless of where you are in morality, don’t take a tool away from people.”
Rep. Larry Liston, R-Colorado Springs, said he just doesn’t understand why the Legislature would interfere with a private business that is following the strict regulations the state already has for such lenders.
“The payday loan industry has played by the rules. They haven’t asked for any bailouts, subsidies or loans,” Liston said. “However, with this legislation we have intentionally targeted a law-abiding industry to put them out of business.”
Liston and other Republicans said people need payday lenders, in part, because they have no access to credit elsewhere.
Under current law, finance rates charged by payday lenders, so called because they offer short-term loans that are paid off within weeks, can be no more than 20 percent for the first $300. Lenders can add an additional 7.5 percent — capped at $75 — for higher loans. All payday loans are capped at $500.
Although the interest might not sound like much, it actually amounts to about 318 percent when compounded annually, Ferrandino said.
He said Arizona voters recently approved a ballot measure to do away with payday lenders altogether. Regardless, none is projected to go out of business. Fifteen states have banned such lenders.
“Is this going to change their business model? Sure, but we created that business model and we have a business model that doesn’t work,” Ferrandino said. “People who take out payday loans are twice as likely to file for bankruptcy than people who don’t. We’re arguing that this gives people access to credit. It doesn’t. It gives them access to bankruptcy.”