The battle over payday loan fees will strain partisan loyalties at the Legislature again this year as new legislation was introduced Friday in the House. While former payday loan bill sponsor Rep. Mark Ferrandino, D-Denver, said the new legislation would roll back last year’s improvements, Senate sponsor of this year’s bill Sen. Rollie Heath, D-Boulder, said the new bill does exactly what he meant to do last year.
“It is doing what I thought we had done a year ago,” Heath told the Colorado Independent. Heath, who says he remains interested in creating a fair marketplace for payday lenders and customers, said “the Attorney General’s office misinterpreted what I thought I had negotiated.”
Ferrendino wholeheartedly disagreed with the move made by Heath to strip what he said was the heart of his bill.
“[The new legislation] basically guts the intent of the bill. One of the main reasons that we [made origination fees refundable] is that it disincentivizes the lender to to churn the loan,” Ferrandino said.
Payday legislation passed last year allowed lenders to charge up to $75 for an origination fee. The fee schedule set up in the legislation allows lenders to charge $20 for every $100 up to a $300 ceiling. After $300, it allows lenders to charge 7.5 percent on every hundred dollars up to $500. Borrowers who paid back the loan before thirty days receive a prorated refund of their origination fee. Borrowers who do not pay back the loan after 30 days begin to incur a $7.50 per hundred dollar maintenance fee per month that is capped at $30 over a possible 6-month term. In addition, they are charged a 45 percent annual percentage rate (APR).
Heath said he never meant for the origination fee to be refundable during his negotiations with lenders and reform advocates. He said the bill would fix that problem.
Confusion surfaced on the legislative intent of the bill during rule making last year, when it was finally determined by Laura Udis, administrator of the Uniform Consumer Credit Code at the Attorney General’s office, that the origination fees could be refunded.
Still, she said, if there was any question to her decision, the legislative remedy would be to amend the language this year. Heath plans to do just that.
Ferrandino, however, said whether Heath was clear or not on the agreement, the Attorney General’s office had been correct in its interpretation. He said then-Gov. Bill Ritter’s office was clear in its letter to the Attorney General’s office that the origination fee was refundable.
“To make [origination fees] non-refundable leads to a conclusion that is basically absurd as to what would happen with interest rates. It leads to interest rates going up versus down. That was never the intent of the bill,” Ferrandino said. “I was clear in my intent. The governor was clear in his.”
A chart, provided by Coloradans for Payday Lending Reform, shows the cost of a $300 loan held for 30 days would increase from $21.75 under current law to $71.25 under the new legislation. When figured in terms of APR the loan jumps from 86 percent to 289 percent.
Ferrandino and others fear that allowing lenders to keep the origination fee regardless of how soon a loan is paid back will cause them to develop loan products that would lead to individuals returning time and again for loans.
Corrine Fowler, Economic Justice director for the Colorado Progressive Coalition, said many legislators were considering the proposal because they thought there was a cool-off period. However, she said that wasn’t the case. Fowler said a 30-day waiting period is required between the dates on which the loans are made only if the same lender makes a subsequent loan to a consumer while a prior loan is outstanding or unpaid.
Past payday lending laws required individuals to pay back loans within a single pay period, which caused many borrowers to enter into a cycle of debt as they would acquire a new loan to pay back the one they had already taken.
Despite the potential risks to those in financial dire straits, many legislators at the time of the initial legislation’s passage said lenders were providing needed credit to those who were unable to get it anywhere else.
Ferrandino said the bill that passed last year was a very delicately devised compromise between the House and the Senate, and payday lenders are trying to “blow-up that compromise.”
Supporters of payday reform said they don’t have funds this year to combat attempts to amend the legislation. However, they said the payday industry brought payday lobbyists on early after last year’s session and provided funds for candidate’s elections.
Fowler said that payday lenders had spent $93,000 since the end of last year’s legislative session in lobbying alone and had given $59,000 in campaign contributions to primarily Republican-oriented war chests. She said that seemed to contradict the image that the industry was struggling.
ACE Cash Express, headquartered in Irving, TX, contributed $26,000 to both the Republican Senate Majority Fund, LLC and Coloradans for a Better Future (CBF), a 527 group registered under Andy Nickel who also was the registered agent of Colorado Citizens for Accountable Government (CCAG). Last year CBF received $50,000 from the Senate Majority Fund, LLC.
The majority of CBF’s money was used for two advertisement expenditures to Strategic Media Placement LLC.
As the Colorado Independent reported, CCAG sent out mailers accusing Democratic House Rep. John Soper of wanting to release sex offenders from prison and implied that Soper would turn them loose in the district’s school yards. Soper roundly denied the accusation by listing off a series of anti-criminal legislation he had supported.
Payday reform advocates said they are targeting the Senate where they feel they have the best chance to stop the legislation from going through.
Sen. Linda Newell, D-Littleton, who voted against last year’s reforms, said she had not seen the legislation yet, but she said she may be amenable to changes that would ensure that the industry survives in the state. Newell voted in favor of Heath’s amendment to the bill last year.
“I understand that it is being negotiated, but I was supportive of the last one. My personal experience with being in poverty before and needing those kinds of services before is that I just don’t want all of those to dry up, but I do understand the compromise,” Newell said.
The bill is being co-sponsored in the House by Rep. Larry Liston, R-Colorado Springs, and Jim Riesberg, D-Greeley, where it will likely pass.