Legislation changing last year’s consumer protection law governing deferred deposit lending passed out of the House Thursday morning after being scheduled in a breakneck, three-day sprint to passage.The Republican sponsor of the bill, Rep. Larry Liston, Colorado Springs, said House Bill 1290 instates a non-refundable origination fee that last year’s law was meant to contain. Mark Ferrandino, D-Denver, the sponsor of last year’s HB 1351, said the bill was never meant to have that provision.
Ferrandino today said the HB 1290 fundamentally alters the bill he sponsored by striking the term “finance charge” from statute and putting in its place the term “non-refundable origination fee.”
“It wasn’t supposed to be an origination fee. This was a charge that helps you finance the loan,” Ferrandino said. “With the change of the refund-ability and the change in the term, what we are doing is raising the interest rates on people if they want to pay it off before the six-month period.”
The bill, if passed into law, would remove a provision currently in place that allows borrowers to receive a prorated refund of fees paid when purchasing a six-month loan. Currently, borrowers who pay off a $300 loan in 30 days will pay $21.25, which amounts to an annual percentage rate (APR) of 86 percent. The new legislation ups the fee to $71.25 on a 30-day loan, or an APR of 289 percent. If a borrowers hold a loan for 180 days under either the proposed or current law, they will pay $240 in fees and interest (162 percent APR) for the loan.
Ferrandino argued that by making fees nonrefundable the law will create a disincentive for people to pay off their debt early and creates an incentive for payday lenders to develop loan products to trap individuals in a cycle of debt — a cycle the current law looks to eliminate.
“[With this new legislation] [w]e are allowing people … to churn the loan and give incentives that sound good to borrowers to be able to pay off their loan early, but in the end actually increases interest rates, increases loans, or will they will pay by paying off a loan by taking out another loan,” Ferrendino said.
Liston said last year’s bill narrowly passed out of the House 33-32 and that Senate sponsor Rollie Heath, D-Boulder, signed on this year’s bill because he wanted it done right.
“It was not done right last year because of the coercion and everything else that was done wrong in a hastened manner,” Liston said. “What has occurred as a result of the House Bill 1351, make no mistake about it, is that when 1351 was implemented it proceeded to put 140 stores out of business. [Lenders] will tell you that.”
Andy Kerr, D-Lakewood, said the statistics do not back up claims that cash advance lenders went out of business due specifically to HB 1351.
He said that while the argument seemed compelling, statistics show the number of payday loan operations have been on the decline since 2007.
“Actually, in 2009 over a hundred of these stores closed down long before House Bill 1351 was passed and became law last year,” Kerr said.
Liston insists that the change in legislation was the driving factor for business closures and added: “This bill [will allow this industry] to stay in business, provide decent jobs, and provide a legitimate, fair, decent service for those consumers who wish to exercise this option.”
Ferrandino disagreed that the bill was fair to consumers.
“In these difficult times I don’t think we should be passing a law like this that increases fees on hard-working families,” Ferrandino said.
The bill passed easily in the House on a vote of 36-27, with two members excused.