Bill would crack down on payday lenders

DENVER - Colorado’s payday loan industry would face additional regulations under a bill announced Thursday, ending what the bill’s authors call predatory lending. But industry representatives say the bill will effectively force such lenders to leave Colorado.

House Bill 1310 would cap the fees and interest rates lenders can collect from borrowers. Finance charges would be limited to $10 for every $100 borrowed, with a maximum charge of $30. The maximum yearly interest rate would be 36 percent.

The bill also would prevent lenders from loaning money to anyone with an outstanding loan, and all loans would be entered into a database to prevent someone from obtaining loans from multiple lenders.

According to the state attorney general’s office, the average payday loan is $343. The average consumer pays an additional $544 in fees, and the APR is more than 350 percent.

“As it stands, the mob charges lower interest rates than payday lenders,” said the bill’s sponsor, Rep. Mark Ferrandino, D-Denver.

The bill’s backers say the industry preys on low-income and minority borrowers, and that the loans trap them in a debt cycle.

“It's time for us to stop allowing these companies to enrich themselves on the backs of our most vulnerable citizens,” said Senate President Peter Groff, D-Denver, who will sponsor the bill when it reaches the Senate.

Advocates for the industry say their business is being mischaracterized. They said their research shows the typical customer in Colorado is 36 years old and earns $25,000-$50,000 annually. They say the average loan is repaid within 18 days.

The cap on interest rates means lenders would be able to earn only $1.38 per $100 loan, said Lyndsey Medsker, who represents the Community Financial Services Association of America. The trade association lobbies on behalf of payday lenders, such as Advance America and Check ‘n Go.

That would drive lenders out of business and hurt consumers, Medsker said.

“The bill doesn’t do anything to eliminate the need, and there’s a huge demand for it, as shown by the numbers,” Medsker said. In 2006, the industry lent $632 million to 290,000 Coloradans.

Laws already on the books regulate the industry, with maximum loans set at $500. Loans can be rolled over only once. No law prevents a consumer from having loans from multiple lenders.