DENVER– Perhaps no issue will underline the divide separating state Democrats and Republicans this legislative session as well as the war to rein in the payday loan industry. That war saw its first real skirmishes Monday at the capitol when roughly 150 payday-loan business owners and employees rallied outside the building in advance of a hearing on a bill that seeks to cap payday interest rates and limit the infamous cycle of personal payday-loan debt the industry depends upon to generate millions in profits.
Payday supporters, including some state lawmakers, railed against the proposed regulation as an infringement on personal liberty and as job-killing government intervention. Supporters of the regulation say the time has come at last to end clearly predatory loan practices that target the state’s vulnerable populations. Republican lawmakers sympathized outside at the rally and inside the committee room with the lenders, who they portrayed as victims of big government. Democratic lawmakers sympathized with the thousands of payday loan borrowers gouged by excessive rates and fees that surpass consumer-protecting limits that apply to the larger lending industry.
Battle lines at the capitol
Sponsored by State Rep. Mark Ferrandino, D-Denver, Sen. Chris Rommer, D-Denver, the bill, HB 1351, would cap payday loan interest at 36 percent. Proponents say that, based on rates charged all across the finance industry, the rate is fair. Payday lenders claim that capping rates at 36 percent would be catastrophic to the industry and put roughly 1,600 Coloradans employed in the industry out of work.
Ferrandino won his battle in the House Judiciary Committee hearing, which passed the bill on a 7 to 4 party-line vote. Voting against the bill were Representatives Bob Gardner, R-Colorado Springs, Steve King, R-Grand Junction, B.J. Nikkel, R-Loveland, and Mark Waller, R-Colorado Springs.
The bill was originally written as a referendum so that it would be submitted to voters to pass, a course of action Ferrandino said would limit pressure on lawmakers to bow to payday lobbyists. But the bill passed out of committee amended to refer it to legislators alone to pass, which will increase pressure under the dome.* Indeed, Ferrandino told the Colorado Independent that the industry has hired new recruits to join the battle against his legislation.
“It is going to be a fight at the capitol,” Ferrandino said. “I do think that the votes are very close. Both sides are going to be working very hard… We have several dedicated lobbyists who are helping us out. And [Payday loan groups] have hired a huge amount of lobbyists– at least 10 if not 20 lobbyists have been hired to lobby against my bill.”
One of the strong voices advocating for the payday industry yesterday was that of Ron Rockvam, president of Money Now and of the Colorado Financial Service Centers Association (COFISCA).
“I have heard your cries. I have heard your stories. And I have heard you concerns for your jobs,” he told the protest crowd. “I will continue to show up every single day to fight for your jobs, to fight for your rights, for everybody in Colorado to have access to this valued credit source.”
Rockvam reminded the crowd that the payday industry had successfully battled back attempts at regulation in the past.
“I want to remind you that we were here two years ago, and we didn’t win every battle, but we won the war and we will win this war.”
Writing the bill this time
Rich Jones, a director at the Bell Policy Center, which worked with Ferrandino and the Colorado Progressive Coalition to craft the referendum, told the Colorado Independent that payday lenders were exempted from usury laws by the Colorado legislature in 2000. Now payday lenders can charge fees that see consumers paying up to $20 for each of the first $300 they borrow. In other words, they pay $60 to get $300. After that, a 7.5 percent interest rate is charged for the $500 that a borrower can take out. The loan is due in 40 days, roughly. Past that period, interest rates with fees can reach 521 percent. The average rate on a payday loan is around 300 percent, which quickly turns a loan for hundreds of dollars into a debt in the thousands of dollars.
“By moving to the fee structure, it allowed payday lenders to charge more than the 36 percent annual percentage rate,” Jones said. Ferrandino’s bill would remove the ability of the lenders to charge fees and cut back on the exorbitant interest rates that characterize the industry and send its customers spiraling into bankruptcy.
“The bill will ask the voters to take away the special exemption [provided by the state] and force payday lenders to play by the same rules as every other lender in the state,” Jones said.
Feeling the pain of payday lenders
Republican Reps. Frank McNulty of Highlands Ranch and Bob Gardner joined the protesters outside and reached out to the lenders, telling them, in effect, that they “felt their pain” as lawmakers attempted to cut into their business.
You provide a necessary service, McNulty told the payday lenders and employees, veering into sentimental compassion.
“You do it well. You do it with your hearts open. For that, I thank you.”
McNulty promised to fight to save the industry, taking it as a given that Ferrandino’s bill would drive the industry out of Colorado altogether.
“We don’t need to put one of the most highly transparent industries in Colorado out of business,” McNulty said. “In my opinion House Bill 1051 represents one of the most fierce intrusions into the private sector and free market.”
Gardner agreed. “We are prepared to fight the battle for you this afternoon, for what I think is a great slogan: ‘My life, my credit, my choice,'” he said to cheers.
Rockvam railed against the nanny-state style lawmakers behind the bill.
“The employees, the customers are here against HB 1051. It is a job-killer and– probably more importantly to the state of Colorado– it is a statement that the legislature feels that they know better than 300,000 Coloradans who every year fall into a financial shortfall.”
Lifting the curtain, dressing as sharks
Ferrandino said legislators must not succumb to the half-truth campaign payday lobbyists are waging. He said lobbyists will be passing out postcards to lawmakers and offering to take them on tours of payday loan shops. He cautioned them to make up their minds on their own.
“It is one thing to say, ‘I’ve been to a payday loan store. The lobbyist took me.’ Well, sure the lobbyist took you. They took you to exactly what they wanted you to see. Everyone there knew exactly what to say,” Ferrandino told the Colorado Independent. “It is another thing to find out the information on your own.”
The payday business, he said, comes not from giving the loans– the actual service they are promoting– but from the cycle of debt the rates and fees create.
“If you look into the data, you find that only a third of the payday lender base is created from the loans themselves… People don’t need short term loans. They need long term loans to help them get over what they are dealing with.
“I think this is an important issue that needs to be brought forward this year, especially in these tough economic times,” Ferrandino said.
Payday lenders are adamant that any further regulation could drive the industry out of state. They maintain that the industry supports more than 1,600 jobs and pays $44 million in wages to the state.
“Proponents of the legislation know full well that interest rate caps are tantamount to a back door ban on the payday advance industry,” said Rockvam in a release. “Millions in tax revenue would virtually disappear if this measure were to pass.”
This is the second try for Ferrandino. The Denver lawmaker tried to pass similar legislation in 2008 that would have capped lending rates at 36 percent, the same limit set by the U.S. Congress and implemented by the U.S. Armed Services on loans given to military service members and their families. That bill failed to pass the Senate.
At the capitol Monday, Colorado Progressive Coalition co-Executive Director Carlos Valverde was part of a small counter demonstration, which included protesters dressed as sharks.
“Unfortunately we can not pay our members to come out,” he told the Colorado Independent, pointing to the thin ranks of his band of protesters. He was confident nonetheless.
“The community supports the bill. If we were to take this to the ballot today, everyone knows that 521 percent is not a fair interest rate to charge anyone.”
* Edit note: The original version of this story reported that Ferrandino’s bill would appear as a ballot referendum. The story now reflects the fact that the bill was amended to change that course of action. Lawmakers alone will vote on the bill.