Interest rates on payday loans capped in House bill

By Marianne Goodland

The bill to place a 45 percent interest rate limit on payday loans finally passed the House on Monday, after more than a month of delays from its committee passage.

House Bill 1351 passed the House by the barest of margins, 33-31. Its third reading vote was delayed from Friday because of the absence of just one House member who supported it.

As introduced, HB 1351 would limit the interest rate a lender could charge for a payday loan to 36 percent. It also would ask voters to approve the change in the next election. The voter approval was amended out of the bill by the judiciary committee in its first hearing in March, but that wasn’t enough to get 33 votes from the House. So HB 1351 went back to the judiciary committee on April 8, based on an agreement between the majority and minority leader to do substantive amendments in committee rather than on the House floor. The committee amended it again to raise the interest rate to 45 percent, the state’s cap on usury rates. The committee also approved a one-time per year $10 origination fee per $100 loan, with a maximum $50 on a $500 loan.

House members from both sides of the aisle mounted a vigorous effort to kill the bill in its second reading debate on April 15 and during its final vote on April 19. Rep. Steve King, R-Grand Junction, claimed the bill would result in the loss of 1,600 jobs in Colorado. As to the 45 percent interest rate cap, it would allow for a profit of $1.73 on a $100 loan, rather than $1.38 with the original 36 percent limit, he said. These businesses can’t pay their bills with $1.73, King charged. Rep. Ken Summers, R-Lakewood, said the General Assembly did not have the right to create the business plan for payday lenders. “We’re sending an arrogant message to businesses in Colorado that we know better how to conduct business than they do,” Summers argued. “We are not protecting consumers, we are saying we will help you and your bad choices by making it easier and less costly for you…let’s educate people to help them protect themselves, not encourage more poor choices,” he said.

Rep. Jim Riesberg, D-Greeley, one of five Democrats opposed to HB 1351, pointed out what happened in other states that enacted lower payday loan rates. In Georgia, more than one million checks were returned; in North Carolina complaints about debt collectors went up as did bankruptcy filings. Riesberg also said the payday loan stores charged fees, not interest, and it was “absurd” to compare finance charges to interest rates. “People are desperate, they need help…let’s help people not abuse it but not run [the industry] out of town.”

Rep. Joe Rice, D-Littleton, another of the five opposing Democrats, asked that the bill be referred to the Business Affairs and Labor Committee, which he chairs, because he said HB 1351 wrote a business model for the industry, had implications for the unemployment trust fund and because no testimony was taken when the bill went through judiciary the second time. “We have a duty to take testimony on this bill in the business committee,” Rice said. That request was denied on a division, or standing, vote.

Prior to the final vote on April 19, Rep. Brian DelGrosso, R-Loveland, said the bill would “demonize” an industry that makes less than a 5 percent annual profit and that “should be scary to any business in Colorado.” Referring to abuses of payday loans by people who take out multiple loans, DelGrosso asked, “do we eliminate an industry because people misuse the system? No.”

Rep. Larry Liston, R-Colorado Springs, commented that the bill was sponsored by special interest groups like the Bell Policy Center, the Progressive Coalition and “a handful of churches…Maybe they would like to loan their money to the payday loan folks,” he said.

Speaking in support of HB 1351, Rep. Max Tyler, D-Lakewood, said the business model of the payday loan industry relies on repeat customers and makes “its living on the misery and ignorance of others.” While payday loan stores say they help people with “occasional emergencies,” Tyler said, what happens instead is that people use the loans for monthly expenses, which is why the average fees for a $300 loan is $487. “This is a way to keep people trapped in a cycle of debt,” Tyler said. “One of our primary jobs in governing is to protect public safety. It’s more than just making sure a bad guy doesn’t walk into a store or protect traffic laws. It also means not allowing an industry that makes its living exploiting people who can least afford it.”

The bill was the subject of intense lobbying from the payday loan industry, which drew the ire of legislators who said they got robocalls and even threats. But several said they had gotten calls from employees of payday loan stores, begging them to vote in favor of HB 1351 because they worried about the customers who take out one loan after another. Rep. John Kefalas, D-Fort Collins, said he had not been prepared to vote in favor of the bill but changed his mind after seeing “disingenuous” TV ads from the payday loan industry and getting robocalls with false information about the bill.

Rep. Mark Ferrandino, D-Denver, noted that the provisions under HB 1351 are more generous to the industry than some of the fees charged for the same service by credit unions. He also disputed whether the industry would go away, pointing out that in Arizona, where 60 percent of the voters approved a measure to ban the industry effective June 30, the store operators said they would adjust their services to meet the letter of the law.

A division vote on HB 1351 on April 15 drew “yes” votes from two Democrats who had voted against Ferrandino’s 2008 effort: HB 08-1310: Rep. Wes McKinley, D-Walsh; and Rep. Buffie McFadyen, D-Pueblo West. But HB 1351 also got “no” votes from five Democrats: Riesberg, Rice, Rep. Debbie Benefield, D-Aurora; Rep. Sue Schafer, D-Wheat Ridge; and Rep. Jeanne Labuda, Denver. Those same five voted with House Republicans against the bill on April 19.

Rice and Benefield both show $200 contributions in 2009 from Ron Rockvam, the owner of Money Now stores in Colorado and current president of the Colorado Financial Service Centers Association, the trade group representing payday loan lenders. Rice’s contribution came in December, Benefield’s was in August. Rockvam also gave $400 to Sen. Linda Newell, D-Englewood during her 2008 campaign.

HB 1351 now goes to the Senate for further action. It is sponsored in the Senate by Sen. Chris Romer, D-Denver.