By Tad Rickman, DENVER DAILY NEWS
On a snowy morning in Denver Sunday, Rep. Mark Ferrandino and Sen. Chris Romer, both Denver Democrats, announced plans to introduce legislation today that would cap payday loan rates at 36 percent APR. If approved by the Legislature, the measure would go to the voters later this year rather than to Gov. Bill Ritter’s desk.
Payday loans are small loans of up to $500 that are secured by the borrower’s personal check. The entire loan plus the fee is due in two weeks, which some borrowers have a hard time paying back.
Ferrandino said in an announcement at the Legislative Services Building Sunday that the average payday loan rate is 318 percent with a maximum allowable rate of 521 percent — which he and Romer said keeps borrowers frozen in debt.
“This is a debt trap that gets people farther and farther into debt,” Ferrandino said.
But opponents of the measure say the bill would put a chill on jobs in Colorado.
“At least 1,600 jobs and millions in tax revenue would virtually disappear if this measure were to pass,” Ron Rockvam, president of the Colorado Financial Service Centers Association (COFISCA), said in a press release.
Opponents of the measure said a cap on payday lending rates in Oregon that took effect in 2007 led to the closing of 75 percent of the payday advance stores in that state within a year — leading to 800 jobs being lost and a boom in the pawn shop business as borrowers sought credit alternatives.
“A bill that wipes out nearly 2,000 payday lending jobs is the last thing our state needs,” A.F. (Tony) Gagliardi, Colorado state director for the National Federation of Independent Business, said in a press release. “Our members join with other business groups in opposing this or any other bill that adds to the economic hardship Colorado is facing. It just makes no sense to attack a highly regulated, well-functioning industry that provides credit to hundreds of thousands of consumers.”
Rockvam also said the measure is a back door attempt to ban payday lending in Colorado.
“Proponents of the legislation know full well that interest rate caps are tantamount to a back door ban on the payday advance industry,” he said in the release.
Ferrandino said he does not believe all of the payday lenders would be forced out of business if this bill became law, because many of these lenders have other lines of business, such as check-cashing, money transfers, etc.
“So this is not all their business,” Ferrandino said.
He added that lawmakers need to do what’s best for Colorado.
“When you have more payday loans than McDonald’s and Starbucks combined in Colorado, there is an oversaturation,” Ferrandino said. “And the only reason they have so many is because it’s such a predatory product.”
He said there are 610 payday lenders in Colorado.
To Romer, capping payday lending rates at 36 percent is about fairness.
“We know the difference between a fair deal and a deal that’s sucking the life out of our economy,” Romer said Sunday. “Any student in fifth grade knows the difference between 36 percent interest rate and 300 percent interest rate. Look, any sixth-grader in Colorado can tell you it’s not fair to take the hard-working dollars out of poor families in this state so that people can make exorbitant profits.”
Master mechanic Tobias Serrano said at the Legislative Services Building Sunday that when he fell behind on his gas bill he had to take out a $400 payday loan. He said it took him five months to pay back the loan, and it cost him $720.
“Looking back, I wish I would have known there was other, less-expensive options like small installment loans,” Serrano said. “I am speaking out to let people know that payday loans as they exist now are predatory, and something needs to be done about this issue.”
But if payday loans disappeared, where would people who need small loans turn?
Corrine Fowler of the Colorado Progressive Coalition, which is supporting the bill, said there are a number of banks and credit unions throughout Colorado that offer small loans to consumers.
Romer said opponents of the legislation have the opportunity to sway voters this November if this bill passes.
“Look, all we’re asking for is a fair deal, and this is going to be a robust debate on the November ballot,” Romer said.
The bill will be introduced in the House today and assigned to committee.
Distributed by Colorado Capitol Reporters
In other coverage:
The Denver Post: Payday-loan customers could see drastically lower interest rates if a bill scheduled to hit the Capitol today can overcome barriers that unraveled a similar plan two years ago. The legislation would let Colorado voters decide this year whether to cap at 36 percent annual interest rates, which can now climb higher than 300 percent on the small sums.
9News: Voters might be the ones to decide the fate of payday loan stores and how much interest they can charge. Sen. Chris Romer (D-Denver) and Rep. Mark Ferrandino (D-Denver) will introduce legislation Monday to refer a measure for the November ballot. The referendum will cap interest on payday loans at 36 percent.
Associated Press: State Rep. Mark Ferrandino and Sen. Chris Romer are announcing legislation targeting payday loans.