It was a cold October morning and the Rev. Timothy Tyler was preaching from a corner on Denver’s 16th Street Mall.
“It is time for people of conscience to join together to do the right thing, to begin the process of lifting up those who cannot lift up themselves!” said the pastor from Shorter Community AME Church, his booming voice echoing down downtown Denver’s busiest concrete corridor.
About 20 people were crowded around him – some dressed for worship, some wearing toothy “loan shark” headdresses – nodding in agreement and chanting “Vote yes on Proposition 111!”
The statewide measure on this November’s ballot seeks to limit the total interest and fees charged by payday lenders to 36 percent. In 2016, Colorado’s average rate was 129 percent, almost eight times higher than the current record-high annual 17.07 percentage rate (APR) of on a credit card.
Faith leaders, economic justice advocates, veterans, elected officials from both parties and civil rights organizations have galvanized around the initiative to curb one of Colorado’s most predatory lending practices. Though lenders say the measure will force them out of business, as similar initiatives have in other recently regulated states, they’ve so far organized no opposition in Colorado.
Kym Ray was at the rally that morning, gently rocking the stroller that held her daughter, Layla, as Tyler spoke. She knows how easy it can be to fall prey to a payday loan.
“I needed to make up the difference to pay my mortgage,” she said. “I just saw their storefront sign, I got a ‘yes’… and the rest is history.”
She said she had first applied for a loan at her local Wells Fargo but was denied. It ultimately took her three months and a second job to pay off more than $125 in interest on her $500 loan.
Payday loans are not only expensive, they are complex. The true cost combines an origination charge, interest payments, and monthly maintenance fees. According to the Colorado Attorney General’s Office, a $392 loan in 2016 cost the borrower an average of $119 in additional fees. That year, 23 percent of Colorado payday loans ended in default.
“It looks like easy money, but it’s not easy money, and it can trap you in so many different ways,” said Tyler, reflecting on the experiences of many of his congregants who’ve been enticed by payday loans.
Corrine Fowler, another proponent of the measure, said, “If you’re an individual who needs a $400 loan to cover yourself and make ends meet, you’re just not going to have another $100 on top of the $400 to pay it back in a very short time.”
Payday storefronts proliferate in areas of moderate poverty, communities with a high percentage of residents under age 15 (a metric researchers use to indicate large families), and communities with large African-American populations. Veterans often are targeted, as are those who are isolated, including the elderly or victims of domestic violence.
“A lot of times, people that live in those neighborhoods don’t always have alternatives,” said Ray, an active NAACP member.
“The issue of access to resources, particularly when survivors are leaving abusers who may have financial control in the relationship, is a constant worry,” added Anne Tapp, executive director of Boulder’s Safehouse Progressive Alliance for Nonviolence.
As high as Colorado’s triple-digit APR may seem, it’s tame compared to some other states where legal rates soar above 600 percent. That’s largely thanks to state legislation passed in 2010 that capped fees, lengthened payback periods, and limited the ability of borrowers to take out new credit to cover outstanding loans. Since then, payday loan volume is down significantly, by about 25 percent, according to the Colorado Attorney General’s Office. Storefronts have disappeared far more rapidly. Of 505 payday lending shops operating statewide in 2009, only 180 remained seven years later.
“There’s hardly anyone around anymore,” said Josh, manager of Paycheck Loans in Englewood, who declined to share his last name for this story. “[We’re] just trying to keep the people who we have employed for the last 20 years employed.”
Jamie Fulmer is the senior vice president of Advance America, a national payday lender that has 19 locations across Colorado. His data from 2012 shows that payday loans are less expensive than bank overdraft fees or utility reconnection fees. “We have faith in the American consumer, and we think they’re savvy enough to evaluate the different options that are available to them,” he said.
Jon Caldara, head of the Independence Institute, a free-market think tank in Denver, is one of the few Coloradans not in the industry to speak out publicly in defense of payday lenders. “The reason they charge these ridiculous rates is because the loans are that risky,” he said.
Fulmer’s 2012 data showed that 97 percent of Advance America’s loans are ultimately repaid. The longer that repayment takes, the more a creditor earns.
As Tyler and fellow Proposition 111 supporters chanted that chilly morning outside the ACE Cash Express on 16th Street, the shop’s interior was quiet and warm. “Would you like to round up 21 cents for cancer research?” an employee name-tagged Melissa softly asked her sole customer. Borrowers generally report positive in-person experiences, according to Pew Charitable Trust research, and 60 percent believe that storefront payday loans are more helpful than harmful.
“I’ve got customers that are buying me presents when they go on vacation because nobody else will help them,” said Josh, the Paycheck Loans manager. “By all means, if you want to get rid of us, just give an avenue for our customers to go to, and it’s unregulated, more expensive loans online, that’s the answer.”
“And nobody will do anything about it.”
South Dakota passed a measure limiting interest rates and fees on payday loans in 2016. After just two months, 25 percent of lenders in that state were gone. Montana’s passage of a similar initiative in 2010 led to an unintended consequence: The number of complaints against online payday lenders spiked from 1 to 101 over the next three years.
Yet Montana’s Assistant Attorney General Chuck Munson says those numbers are deceptive because, within six years, they had fallen back into the single digits. He attributed much of the initial spike to a handful of borrowers who took out many loans from different lenders.
“Over time, people adjust, and they aren’t necessarily seeking out the easy loans,” Munson said. “[They] are figuring out other ways to get by, whatever they may be.”
National statistics back up that scenario: The number of adults who report having used an online payday loan in the last year is just 6.5 percent higher in states with tight restrictions than the nationwide figure.
One thing, however, has changed since Colorado’s northern neighbors passed their own rate caps. Funding by the industry to oppose these ballot initiatives has disappeared. Just two years ago in South Dakota, predatory lending companies spent $1.3 million opposing that state’s version of Proposition 111 – the largest bulk of it from Georgia-based Select Management Resources, with the balance from Advance America.
In Colorado, there had been no contributions to any opposition group reported at the time of this writing, while proponents have raised $1.7 million in combined cash and in-kind contributions to campaign for Proposition 111. Of that, more than $1.6 million came from The Sixteen Thirty Fund, a Washington, D.C.-based advocacy organization that raises money to back a wide variety of progressive causes.
Advance America’s Fulmer refused to comment on any strategy in Colorado, where ballots have already been mailed.
But proponents won’t be surprised to see the industry weigh in against Proposition 111 at the last minute. In South Dakota, Advance America bankrolled its opposition to that state’s measure just eight days before the election. “We are on the edge of our seat, constantly wondering when they’ll show themselves,” said Fowler, speculating that payday lenders could be hoping to sidestep Proposition 111 with help from the federal government.
Under the Obama administration, the Consumer Financial Protection Bureau issued a rule limiting both the amount of credit that payday lenders could offer and the extent of fees they could charge. In January, acting CFPB Director Mick Mulvaney August 19, 2019. CFPB also dropped lawsuits against four predatory payday lenders accused of charging more than a 950 percent APR. Since 2009, the Bureau’s intention to reexamine the rule, but the effective date for most provisions remains Advance America – with headquarters the South Carolina Congressional district Mulvaney used to represent – has had to pay out $40 million to settle similar cases across the country.
It’s difficult to speculate what actions the federal government might take to protect predatory lenders in the future, but in the near term, the number of options available to those seeking a payday loan in Colorado is likely to wane significantly if Proposition 111 passes in November. ”I would say it’s definitely going to happen,” said Fulmer when asked if Advance America would close locations under the new rate cap. “All of them.”
Fowler suggested alternative sources. “There are other lending products on the market; there’s your grandma to borrow money from, friends, relatives, there’s your church to help you out,” she said. According to Pew research, 41 percent of payday borrowers ultimately end up turning to one of those resources to pay back an inflated loan bill, and a large majority would prefer more regulation of the industry. Yet 37 percent still said that they were desperate enough to have taken out a loan at any price.
“If exploitative businesses that target vulnerable people while they’re living on the edge of poverty is the only solution, that says something about us as a community,” said Safehouse’s Tapp.
After his sermon, Tyler said it’s incumbent upon religious leaders to not just rail against public policies that harm their flocks, but also to “bring something to the table that fixes the problem.”
“To do nothing,” he said, “would be unconscionable.”
An earlier version of this story wrongly attributed a statement about profits earned on payday loans to Jamie Fulmer, the senior vice president of Advance America. It also incorrectly stated Mick Mulvaney’s title and the compliance deadline of a new CPFB rule on payday loans. We apologize for the errors.