Payday lending bill dies in Senate committee

The Colorado Statesman

Efforts to undo part of last year’s payday lending reforms came to an end on Thursday, when the Senate Local Government and Energy Committee voted on a party-line 3-2 vote to shut down House Bill 11-1290.

The Local Government committee was the only one in the Senate without a clear supporter or sponsor of HB 1290, and it was sent the assignment of hearing HB 1290 from the Senate Finance Committee in a surprise move Tuesday.

HB 1290 would make the origination fee on a payday loan “fully earned” at the time the loan is taken out. Under the law passed in 2010, payday loans can result in three types of interest charges. First is the origination fee, which is $20 per $100 for the first $300, and $7.50 per $100 for the next $200. In a maximum loan of $500, the maximum origination fee is $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.

Under last year’s payday reform legislation, HB 10-1351, if the loan is paid off early, the origination fee is pro-rated and the borrower would pay only a portion of it; under HB 11-1290 the origination fee is fully earned and the borrower would have to pay all of it, whether the loan is paid back in two weeks or six months.

The sponsor of HB 1290, Sen. Rollie Heath, D-Boulder, wasn’t present for the 7-0 vote in Senate Finance Tuesday as he was attending a press conference on redistricting held by Republican members of the Joint Select Committee on Redistricting. Finance committee Chair Sen. Michael Johnston, D-Denver, told The Colorado Statesman that the bill was sent elsewhere because it has no financial impact for the state and that his committee had a much fuller plate in the closing days of the session than did the Local Government committee. In addition, local governments are looking at payday lending, he said, some with an eye on more restrictions or even outright bans, and that made HB 1290 much more appropriate for the other committee.

Up until Thursday, the bill had two certain Democratic “no” and two strong Republican “aye” votes, with the swing vote likely to come from Rep. Irene Aguilar, D-Denver. Aguilar told The Statesman prior to Thursday’s hearing that a family member in the military had long ago relied on payday loans, and she also shares an office with Heath. On the other hand, Aguilar replaced former Sen. Chris Romer, D-Denver, the Senate sponsor of the 2010 legislation, and parts of her district overlap the House district of Rep. Mark Ferrandino, D-Denver, who originated the 2010 reform legislation.

The debate over HB 1290 in the Senate took place at nearly the same time as the final debate on the 2010 legislation — during the last week of the session — and the bill pitted Heath against people and organizations who normally back his efforts. “I’ve gotten [negative] letters from friends I thought I’d never see,” Heath told the Local Government committee on Thursday.

Heath maintained that the language from HB 1290 was no different than what was intended in HB 1351. “This is what we negotiated. HB 1290 doesn’t change anything,” he said.

Ron Rockvam, the owner of three MoneyTree Stores and president of the state association for payday lenders, said two of his stores have closed in the past year. The origination fee helps cover costs of payday loans, he told the committee, such as bad debts. “It’s a key component for our industry to make the new business model workable at all,” and without the ability to retain the origination fee, “it becomes an impossibility.” Rockvam said one-third of the payday lending stores have closed their doors in the past year, putting 400 to 500 people out of work, and he estimated the costs of unemployment benefits to those people at $2.5 million. In addition, banks and credit unions do not offer these kinds of loans, Rockvam told the committee; these loans are available to people who are “credit-challenged,” have emergency cash needs and don’t have access to credit cards.

Rockvam was the sole witness in favor of HB 1290; he was followed by a half-dozen representatives of organizations that found themselves in the rare position of opposing Heath.

That included Brad Wood of the Lutheran Advocacy Ministry, who said the compromise mentioned by Heath was not what they had agreed to last year, and that people who want to get payday loans still have access to them. And given that the rules promulgated by the Attorney General on payday lending didn’t go into effect until last November, Wood asked that the General Assembly give the new law “a chance to work.”

Rich Jones of the Bell Policy Center explained that the last-minute negotiations over HB 1351 last year did not have everyone at the table at the same time, and that those involved in the reforms did not agree to the origination fee not being refundable. The sponsors would go from one room to another to explain the compromises, he said, and Heath later agreed that was the way it worked. But HB 1290 will result in higher loan costs to borrowers who pay them off early, Jones said, and it will create a financial incentive for lenders to get those borrowers to pay early and then take out new loans with another round of fees. “The reform is working,” Jones said. “Doing this now is not good policy.”

Last year, Christine Murphy was part of the governor’s office working on the 2010 bill, but this year she’s executive director of the Colorado Center on Law and Policy. Passing HB 1290 will return borrowers to paying more than they did before the passage of last year’s bill, she said. “It’s not an appropriate consumer protection.” Murphy also noted that since 2007, payday lenders have been closing their doors in Colorado and that the 2010 bill did not cause that trend.

It clearly pained committee Chair Sen. Joyce Foster, D-Denver, to vote against HB 1290 and against her friend, Heath. “I respect you so much. You are my hero,” she told Heath. “But I can’t support this. I’m very sorry.”

Heath said the bill puts everyone in an awkward situation, but that he felt he had a moral obligation to put into law what he believed he had agreed to last year. And he said he felt personally satisfied that he’d made the effort.

The committee’s two Republicans voiced their support for HB 1290. Sen. Bill Cadman, R-Colorado Springs, said he would stick to the deal that he said everyone made last year. “It’s incumbent on us to honor the original intent,” Cadman said. Sen. Ellen Roberts, R-Durango, said she believed that last year’s legislation had a significant negative impact on the industry and told Heath she appreciated that he had stepped forward to do the right thing.

As to the swing vote: Aguilar said she was glad she hadn’t been at the Capitol last year. But she said after conversations with Ferrandino she would take her counsel from him. Passing HB 1290 would make the situation worse for those who pay off the loans early, she said, but joked to Heath that in voting against the bill “I hope that doesn’t mean you won’t bring me chocolate anymore.”