Payday reform bill hits pay dirt - but not until it's muddied up with amendments
By Marianne Goodland
The second attempt by Rep. Mark Ferrandino, D-Denver, to end the cycle of debt created with payday loans is now on its way to the desk of Gov. Bill Ritter.
Tuesday, the House agreed with Senate amendments put on House Bill 10-1351, the payday loan bill.
HB 1351 passed by the narrowest of margins in both the Senate and the House in the past week, with a handful of Democrats voting against along with all the Senate and House Republicans.
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 House and the interest rate was upped to 45 percent.
The bill was substantially amended in the Senate to change the repayment period for a payday loan from as little as two weeks to six months, but the loan could be prepaid at any time before the end of the six-month period without penalty. Under the amendment, if the loan is not paid off in 30 days, the lender could charge a maintenance fee of $7.50 per $100 loan, to a maximum of $30 per month. The lender could also charge an origination fee, of up to $75 on a $500 loan, a change put on HB 1351 in the House.
“Payday lending has an absolute place,” said Sen. Rollie Heath, D-Boulder, one of the three Democrats who sponsored the successful Senate amendment. Heath said the amendment would try to preserve the industry but still get consumers out of the cycle of debt. Heath also said nothing in HB 1351 would preclude a consumer from negotiating with the lender to pay off the loan a little at a time instead of a one-time balloon payment at the end of the loan period. This “provides the maximum flexibility to the borrower” and still allows the lender to make money, he said.
Sen. Abel Tapia, D-Pueblo, a sponsor of the same amendment, said doing nothing this year would result in the bill coming back again next year. The specter of ballot initiatives also hung over the General Assembly; three have been filed that were more restrictive than HB 1351, and which included the 36 percent interest rate cap.
In opposition to HB 1351, Sen. Lois Tochtrop, D-Thornton, said the amendment would not keep payday lenders in business. “If this bill passes we will lose jobs,” she said. Tochtrop offered her own amendment to create an installment loan system and to double the maintenance fee, up to a maximum of $60 per month. Tochtrop said the amendment, which was negotiated with the industry, would keep the lenders in business and provide a much-needed service. But Heath opposed the amendment, stating that the maintenance fee was too high. The amendment failed.
Also opposed to HB 1351, Sen. Greg Brophy, R-Wray, said consumers in small towns would lose the ability to get loans because payday lenders will not be able to stay open. Brophy said consumers will instead have to turn to payday lenders on the Internet, and HB 1351 will leave those consumers at the mercy of those unregulated businesses.
Sen. Al White, R-Hayden, warned that if payday lenders went out of business consumers would have to turn to loan sharks. The only option would be loans from organized crime, White said, and “Willie the Enforcer isn’t satisfied with a postdated check. Willie the Enforcer is satisfied with knees and elbows and physical pain and intimidation,” he said.
“Is that what we want in Colorado?”
Republicans tried several procedural moves to kill HB 1351; on April 29 it was to lay over the bill to May 13, after the session ended. The following day, Senate Minority Leader Josh Penry, R-Grand Junction, tried to get the Senate to adjourn sine die to prevent a final vote on HB 1351. (The sine die motion marks the official end of the legislative session.)
Penry also filed a complaint over a visit to the Senate chambers by a supporter of HB 1351. Penry wrote a letter to Shaffer on April 28 asking that Carlos Valverde of the Colorado Progressive Coalition be permanently barred from the Senate chamber. In his letter, Penry said Valverde had been on the Senate floor that day as a guest but “attempted numerous times to influence members regarding HB 1351.” Valverde, a guest of Sen. Abel Tapia, D-Pueblo, helped draft HB 1351 and testified in favor of the bill but is not a registered lobbyist.
In a press release issued April 29, Senate Democrats said HB 1351 would “provide real reform of the payday loan industry and protect consumers by requiring all lenders to play on a level playing field by charging no more than 45% APR.” It also would get consumers out of the cycle of debt, the release said, noting that according to the Attorney General the average payday borrower currently rolls over or takes out the same loan six times before paying off the original loan amount. In 2007, the release said, borrowers paid on average $573 to take out a $354 loan.
The final vote on HB 1351 on April 30 was 18-17, with three Democrats (Tochtrop, Sen. Linda Newell, D-Littleton; and Sen. Mary Hodge, D-Brighton) voting against along with the Senate Republicans. However, that was a second vote on the bill; the first vote, according to a count from Senate President Brandon Shaffer, D-Longmont, was 20-15 and was based on counting just the “no” votes, and that included the same three Democrat “no” votes. Republicans then asked for a roll call vote on the bill and it changed to 18-17.
On May 4, HB 1351 was back in the House for concurrence on Senate amendments. Ferrandino said he supported the Senate changes, stating the bill would still accomplish his goal of breaking the cycle of debt, which occurs when people have to keep renewing loans every two weeks and pay the interest that goes with those renewals. “This puts the consumer in control,” Ferrandino said. With the six-month term, consumers can pay the loan off early without penalty and have an incentive to pay them off early, he said. But opponents continued to claim that the bill would shut down the industry and cost the state jobs.
“Instead of putting an entire industry out of business, it may put only a third of the industry out of business,” said Rep. Larry Liston, R-Colorado Springs. The House voted 52-13 to concur on Senate amendments and re-adopted the bill on a 33-32 vote. The House votes to re-pass were identical to the vote taken to originally pass the bill on April 19, with four Democrats voting with Republicans against.
Ferrandino told The Colorado Statesman Tuesday the bill was not as strong as he would have wanted it, but as amended by the Senate, HB 1351 did accomplish his goal of getting consumers out of the cycle of debt. If signed by Ritter — and Ferrandino said he believed Ritter would sign it — the law will “put the consumer in the driver’s seat,” he said. “The question now is whether the industry will find a way to get around it.”
HB 1351 was Ferrandino’s second attempt to change the payday loan industry, created in Colorado in 2000 when the legislature created an exemption for payday lenders from the state’s usury laws. Ferrandino tried a similar effort in 2008 that passed the House but failed in the Senate.