Payday lender bill being fast-tracked through House

The Colorado Statesman

A bill to undo one of the most controversial aspects of last year’s payday lender reform bill was introduced in the House Friday and could be in committee as soon as this week.

House Bill 11-1290 requires that that the origination fee charged on a payday loan be “fully earned” at the time of the loan. Under the new bill, a borrower would be responsible for paying all of the origination fee, rather than being able to pay a pro-rated portion of it if the loan is paid off early.

Payday loans, or “small consumer loans,” as they are now known, were revised in state law last year and levy three types of interest charges. The first is the origination fee, which is $20 per $100 for the first $300, and $15 per $100 for the next $200, for a maximum loan of $500 and maximum origination fee of $75. Lenders can also charge a monthly maintenance fee, once the first 30 days have passed, of $7.50 per month per $100. The third fee is a finance charge of 45 percent. Borrowers can repay the loan anytime between two weeks and six months, in biweekly or monthly payments.

On a $300 loan for example, if paid back in sixty days, the borrower would pay $78.75 in interest charges for a total annual interest rate of 157 percent. Prior to the 2010 law, the loan had to be repaid in full every two weeks. If the loan were paid off and re-issued every two weeks, which was common, the interest charges in 60 days would be $240, for an annual interest rate of 480 percent.

Rep. Larry Liston, R-Colorado Springs, who chairs the House Economic and Business Development Committee, co-sponsors the bill with Rep. Jim Riesberg, D-Greeley, one of five Democrats who opposed the reform bill last year. In the Senate, HB 1290 is sponsored by Sen. Rollie Heath, D-Boulder, who authored several major amendments on the 2010 bill.

That bill, HB 10-1351, passed 33-31 on April 19. Of the five Democrats who voted against it, two lost re-election bids and were replaced by Republicans. In the Senate, on April 30, HB 1351 was the subject of a furious debate on third reading, including an attempt by Senate Minority Leader Josh Penry, R-Grand Junction, to adjourn the Senate sine die to prevent the bill’s passage. HB 1351 passed 19-16, with three Democrats, all still in the body this session, voting against.

HB 11-1290 has 10 co-sponsors in the House including Rep. Sue Schafer, D-Wheat Ridge, one of the 2010 “no” votes, and Rep. Ed Casso, D-Commerce City, who had voted in favor of HB 10-1351.

In the Senate, in addition to Heath, the bill is co-sponsored by three other senators, including Sen. Mary Hodge, D-Brighton, and Sen. Lois Tochtrop, D-Adams County, who both voted against HB 1351 last year.

Gov. Bill Ritter signed HB 1351 on May 25, but that was far from the end of the battle.

Over the summer, the Attorney General’s division of Uniform Consumer Credit Code (UCCC) began working on the rules that would govern the payday lending industry under HB 1351.

The first draft of the rules, released June 18, said the origination fee could be refunded on a pro-rata basis if the borrower paid off the loan early. A second draft, released July 31, reversed that position and said the origination fee was fully earned at the time of the transaction.

Attorney General John Suthers took heat over the change, when it was revealed he had accepted more than $10,000 in campaign contributions from payday lenders during the time between the first and second drafts. Suthers attended a fundraiser held for him by payday lenders during that time, but denied he had anything to do with the change in the rules. Suthers spokesman Mike Saccone noted that the head of the UCCC, Laura Udis, was responsible for drafting those rules and that Suthers had no input into them.

In a July 23 letter to Udis on the rules, Craig Welling, Ritter’s chief counsel, said the plain language of HB 1351 made it clear that the annual percentage rate, which included all finance charges, was refundable on a pro rated basis. Under the interpretation devised by the UCCC, borrowers who prepaid debt on payday loans “would face more fees than they would prior to passage of HB 1351,” Welling wrote, which would lead to an “absurd result.”

Udis reversed herself at the end of an Aug. 31 hearing, deciding that the origination fee should be refundable on a pro-rated basis for early payoffs of the loan.

During testimony in the August hearing, Rep. Mark Ferrandino, D-Denver, said he had always intended that the origination fee be refundable, as did the bill’s Senate sponsor, Sen. Chris Romer, D-Denver. Heath did not testify during the August hearing nor did he ever speak with the staff of the UCCC, who sought to clarify what he intended with his amendments.

Heath said Friday that it was always his intention that the origination fee be fully earned at the time of the transaction, and what the new bill does “puts into effect what I thought we negotiated” last year. “This is what I thought we had done and don’t understand how the [UCCC] came up with a different interpretation. In good conscience, I needed to do this,” and Heath said he believed the latest bill could pass the Democrat-controlled Senate.

Liston told The Colorado Statesman the bill would “tweak” the rules and that he agreed with Heath’s intent in last year’s legislation. “As the rules were interpreted, they were very detrimental to the people in the business,” Liston said Friday. He estimated that 160 stores have closed in Colorado since the passage of HB 1351 and if “each store employs three people, that’s more than 450 jobs.”

Speculation that HB 1290 is merely a technical correction to HB 10-1351 is rejected by Rich Jones of the Bell Policy Center, who led Coloradans for Responsible Reform, one of the backers of HB 1351. Jones told The Statesman the bill is much more than a technical modification. “It’s an incentive for the lenders to get customers to pay off their loans early and then take out more loans,” he said Friday.