DENVER– On Friday the state Senate passed a compromise version of Rep. Mark Ferrandino’s payday loan bill, which seeks to protect consumers against high interest rates and fees. Lawmakers fearing job-loss forecasts put forward by short-term loan industry softened the strictest limits the original version of the bill would have put in place. Ferrandino is confident the amended bill will pass in the House and head to the governor’s desk for signing this week.
Even before he introduced the bill in March, Ferrandino knew the battle would be waged in the Senate, where lawmakers have in the past successfully plead the case for non-regulation of the industry. Ferrandino is now cautiously optimistic that the bill that emerged from the Senate Friday remains “good step in the right direction.”
“The bill’s obviously weaker than the original version, but I think it gets us to where I want to be. It is a much more complicated bill now, so the question is Will the industry find loopholes within the law? I think the intent of the bill is clear, but do they find loopholes?
“I think the way the Senate looked at it, and I was part of that discussion, was really to allow the consumer the power to decide how long the loan would be and make sure they don’t get caught inside the cycle of debt. We’ll see by next year if it doesn’t work out as intended.”
Ferrandino has argued since he introduced the controversial bill months ago that the payday loan industry makes its profits by sinking its customers into escalating debt. What has been a good business model for the industry has been bad for its customers, he has said. The short-term credit on offer has been “cheese for a trap” that produces windfall profits on the backs of people often struggling to make it day to day.
Republicans and three Democrats, including Sens. Linda Newell, D-Littleton, and Lois Tochtrop, D-Thornton, fought hard against the original bill, which the industry estimated would have shuttered 70 percent of payday lending operations in the state, which would have cost at least hundreds of jobs.
Sponsored by Sen. Chris Rommer, D-Denver, that version was amended Thursday by Sen. Rollie Heath, D-Boulder, cutting back on the strictest interest and fee regulations. Heath said he was unwilling to support a bill that killed the industry.The amendment passed, basically restructuring the industry into a six-month short term loan business that would allow borrowers to pay in installments.
The bill will cap payday loans at a 45 percent annual percentage rate (APR). Lenders can charge up to $75 installment fees on $500 maximum loan amounts; $20 fees for $100 loans and for first-time $300; and $7.50 for each subsequent $100. In addition, a maintenance fee of $7.50 on each $100 up to $30 can be charged by lenders each month that the loan remains outstanding. If a borrower fails to make any payment before the end of six months, they would pay $335 for a $500 loan. The loan can be rolled over once. As it is now, customers have to pay back their loans in two week or one-month intervals, quickly falling behind and wracking up fees and interest.
Negotiations with the industry according to Heath broke down over whether the monthly fee should be capped at $30 or $60. Payday lenders were asking for $60 at a minimum.
Tochtrop offered her own amendment in support of the industry. She said Heath’s amendment didn’t go far enough to protect payday lenders. “This is not the agreement,” she said, apparently referring to conversations made between the industry and lawmakers, opponents and supporters of the bill. “This is not going to keep payday lenders in business… If this bill passes, we are going to lose jobs. Nobody is putting a gun to the head of a consumer and making them take out a payday loan,” she said.
Most Republicans supported an industry-backed amendment brought forward by Tochtrop that would have restructured the industry to offer installment plans but also would have raised the cap on fees to $60. The amendment was defeated.
“If the industry can’t make it on these new numbers then they are doing something wrong,” Heath said after helping to pass the final vote.
Republicans fighting against the bill made fairly straight ideological arguments against government interference. They said it was not the place of government to regulate industry and effectively destroy it.
“What we are here today to decide is should this industry continue or shall it be put to sleep at the discretion of the Colorado legislature,” said Sen. Al White, R-Hayden.
White said that if lawmakers kill the payday loan industry through regulation, they would be delivering payday customers into the arms of organized crime and their sharks. He said the original version of the bill would have unintended grave consequences for payday customers.
“If we pass this bill, we are inviting organized crime into Colorado…. Organized crime makes these loans and you know how they collect? They send Willie the Enforcer out to your house, and Willie the Enforcer is not satisfied with a post-dated check.”
Heath thought White was being over the top. “This industry is regulated by the general assembly now. It just comes down to whether we [levy] a $30 or a $60 fee.”
Heath said that the industry had convinced him that it couldn’t survive without a fee but that he was not convinced the fee had to be $60.
“Allowing people a longer time to payback the loan will limit the cycle of debt,” Heath said.