Republican Colorado Attorney General Cynthia Coffman and her Democratic counterpart in Massachusetts, Maura Healey, are leading a bipartisan effort of state attorneys general urging Congress not to pass two proposed bills that could impact how states limit interest rates on payday loans.
The 20 attorneys general said in a letter to U.S. Senate leaders last week that two bills they are considering — HR3299, Protecting Consumers' Access of Credit Act of 2017, and HR4439, Modernizing Credit Opportunities Act — would allow non-bank lenders to sidestep state usury laws.
The two measures would allow payday lenders to charge excessive interest rates that would otherwise be illegal under state law, Coffman said.
"Colorado has long exercised its sovereign right to protect consumers from abuse by limiting the interest rates that lenders can charge on consumer loans," Coffman said. "While state interest rate limits are pre-empted by federal law for some bank loans, the pending bills seek to improperly expand that pre-emption to include payday and other non-bank lenders. I join my fellow state attorneys general in urging Congress against the further restrictions of states' ability to protect their citizens from lending abuses."
In the letter, signed by attorneys general in such left-leaning states as California and Hawaii and right-leaning states as Tennessee and Mississippi, the legal officials say the two bills delve into issues long left to the states to decide.
"States have, over time, crafted laws that create a careful balance between access to credit and protecting consumers," they wrote. "Both Congress and the Supreme Court have rejected efforts to circumvent those laws and limit enforcement of them, including state actions against banks."
In Colorado, interest rates on payday loans are already higher than most bank or credit cards, which are capped at 45 percent.
According to the Attorney General's Office's annual report on deferred deposit/payday lenders for 2016, the latest data available, there were 414,284 payday loans made during that year for a total of more than $165 million. That's an average of about $400 per loan.
To pay loans of that amount off, borrowers had to pay 45 percent in interest, or about $32.
Additionally, they are charged origination fees of nearly $38 and monthly maintenance fees of $49.
Altogether that averages to an annual percentage rate of 129 percent, according to Coffman's office.
Currently, there are three proposed ballot measures addressing payday loan interest rates. One, Initiative 126, would set the maximum rate at 36 percent and eliminate all fees.
Another, Initiative 183, would reduce that rate to 36 percent, but leave the fees alone, while a third, Initiative 184, also would reduce the monthly maintenance fee from $7.50 a day to $5 a day.
In their letter, the attorneys general said such interest rates and fees could go even higher.
"It is even more important to preserve state law and allow enforcement of those laws against non-bank entities, many of which are regulated primarily at the state level," they wrote. "Congress should not now override state-granted protections in this important sphere of state regulation."
The three proposed citizens' initiatives are in the process of collecting enough signatures to qualify for this fall's ballot. They each have until Aug. 8 to collect signatures from at least 98,492 registered voters.