Payday loan bill debates continue

Andrew Villegas, (Bio) avillegas@greeleytribune.com
February 28, 2008

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A bill in the Legislature would limit the interest and fees payday lending businesses can charge residents, though opponents say it will drive out the industry and create a black market for loans the state cannot regulate.

The bill -- HB 1310 -- would place a limit of 45 percent annual interest rate on short-term loans businesses provide to residents, and it would limit lenders to assessing only one $60 finance fee per borrower, per year. It also would allow borrowers 30 days to repay the loan instead of the 14 days the industry uses now.

Now, businesses can assess annual interest rates of sometimes more than 350 percent on payday loans they give. Most payday loan businesses make borrowers postdate a check to use as collateral for the loan.

The bill won approval from the Colorado House on Monday by a narrow margin and now goes to the Senate for further consideration.

Both Rep. Glen Vaad, R-Mead, and Rep. Jim Riesberg, D-Greeley, voted against the measure. Vaad said he received more than a dozen e-mails from Greeley and Longmont payday loaners who said the bill -- if it becomes law -- will drive them out of business.

"They're short-term, high-risk loans," said Vaad, who added that many lenders only make 3-7 percent profit on the loans. "They're not getting rich on this. ... They need that kind of return to keep those loans working."

Ron Rockvam, a payday lender in Fort Collins and president of the Colorado Financial Services Centers Association, said if the bill passes, every payday lending business in Colorado -- 640 in all -- will close and that loaning will be driven underground where it cannot be regulated.

Moreover, it would cause 1,800 people to lose their jobs and health benefits, Rockvam said, adding that lenders will be able to charge just 13 cents per day on a $100 loan if the bill passes.

"I don't know any business that can run on that," he said.

Others say the bill will stop predatory lending practices in the state, which resulted after officials allowed lenders to charge nearly whatever interest they wanted when Colorado made the lending legal in 2000.

"The vast majority of people get caught in a cycle of debt by rolling over their loans," never allowing them to repay it, said Spiros Protopsaltis, president of the Center for Policy Entrepreneurship.

Protopsaltis said a study conducted by his center and the Bell Policy Center found that borrowers took an average of nine loans each in 2006 and that the average borrower paid $544 to borrow $343.

Twelve other states and the military have laws capping the amount of interest lenders can charge, Protopsaltis said.

"There are three payday lenders for every McDonald's in the state," Protopsaltis said. "If they can't make money with a 45 percent interest rate, then there's something wrong with their business model."

Payday Lending in Colorado by the numbers in 2006:

Nine: Average loans borrowers took out.

353: Average percent of annual interest rate from payday loaner.

$544: Price average borrower paid to borrow $343.

Two of three all loans were rollover or refinanced loans because borrowers couldn't pay the loan back on time.

Source: Bell Policy Center