 Colorado Legislation
Coloradans for Payday Lending Reform is a broad-based coalition working with lawmakers to create reforms to break the cycle of debt that traps many hard-working Coloradans.
Payday lending is not some venerable industry that got its start in Colorado’s mining days. No, payday lenders were allowed to open up shop in 2000 and were given a special exemption by the legislature so that they could exceed the state’s 45% usury cap.
Three years ago, the predatory nature of the loans had become evident, and lawmakers passed a law that was supposed to make payday lenders offer a payment plan to repeat borrowers. Attorney General John Suthers issued a report that assessed the first year of the payment plan. He found that many payday lenders were “restricting access” to payment plans, and only a fraction of eligible borrowers have been able to use the plans to get free of their loans.
Everyday people seem to get the unfairness of 318% interest rates, but at the legislature in 2007-08, the reform bill got sidetracked. Ultimately, the effort collapsed under too many changes and amendments that gutted the original bill.
The most recent session was another disappointment. Although
we worked throughout the session on
potential legislation to limit the number
of loans payday lenders could issue, and
garnered enough support for the concept,
we could not work out all the details to
implement a database to track the loans
and other regulatory requirements.
We haven't given up – by any means. In other states, reform efforts have taken several tries. Coloradans for Payday Lending Reform will push for meaningful reform – either a cap on interest rates or a cap on the number of loans.
»Learn more about Colorado Legislation of Payday Lending
Harper's Magazine feature
April 2009
Usury country: Welcome to the birthplace of payday lending
By Daniel Brook
On a whitewashed church pew in Johnson City, I sat alone as James Eaton stood over me delivering a sermon. It was a Monday, and this was Eaton’s office. One of the inventors of payday lending – the business of making small, short-term loans from retail locations at steep rates – Eaton operates out of a converted service station, with a tarp sign in red and white: here’s where it all started. east tennessee’s first, oldest & finest. He had suggested we conduct our interview in his reception area, on the pew he brought up years ago from his wife’s childhood church in Alabama. I balanced my coffee cup perilously on the green-felt pew pad as I listened to him enumerate his own good works – his donations to a Bible college, his support for a rural congregation of evangelical Harley-Davidson enthusiasts. Eaton’s homily was heartfelt, if meandering and peppered with such biblical malapropisms as Jesus having “healed those leopards.” As he preached, customers kept trudging in past us to the counter, where they wrote postdated bad checks and walked away with twenties at several hundred percent interest, all transacted above a vast American flag dangling from the countertop.
“Good to see y’all!” Eaton greeted each customer, his chirpy voice cracking with enthusiasm. “Good to see you too,” generally came the more muted reply.
»Read the full story
New York Times editorial
July 13, 2009
Borrowers Bled Dry
State legislatures unknowingly legalized loan sharking when they exempted short-term, “payday” lenders from usury laws that generally capped interest rates at about 36 percent. The lenders, which now charge interest of 400 percent or more, got the exemption by arguing that small loans that were paid off quickly would help families through emergencies and keep them out of long-term debt.
But payday lenders, which have spread like weeds since the 1990s, have spelled financial disaster for many low-income families. Legislators who have any doubt about the need to rein in this rapacious industry by ending the usury exemption and exerting tighter state and federal scrutiny should read a new study from the Center for Responsible Lending, a nonpartisan research and policy group.
In this style of lending, borrowers typically agree to repay both the principal and a hefty fee by the next payday. That seems straightforward, until you consider that the payment sometimes comes to as much as half of the borrower’s take-home pay. Unable to meet their other bills, borrowers often take out new loans right away, often on the very day that the first loan is paid off. Trapped in a downward spiral, they borrow again and again until they are bled dry.
According to the study, three-quarters of the industry’s loans are generated from borrowers caught in this endless cycle of borrowing again before the next paycheck. There were about 500 payday loan locations in 1990 and are about 22,000 today. In 29 of the 35 states that permit this kind of lending, the authors say, the pay- day storefronts now outnumber McDonald’s restaurants.
That’s bad news for blue-collar and low-income payday borrowers, who are more likely to default on credit card debt, to declare bankruptcy and to lose their bank accounts for abusing overdraft protections. Payday lenders may actually be helping to drive working-class people into the ranks of the poor.
Congress can help by passing a bill introduced by Senator Richard Durbin, Democrat of Illinois, that would limit interest charges on all kinds of consumer credit. In the meantime, legislators should emulate the states that have enacted rate caps to drive out payday lenders.
 Payday Loans Artificially Create Their Own Demand
A new study released by the North Carolina-based Center for Responsible Lending finds that most of the demand for payday loans has been artificially created by the industry. The July 2009 report, entitled Phantom Demand: Short Term Due Date Generates Need for Repeat Payday Loans, Accounting for 76% of Total Volume, describes how payday loans essentially “churn” consumer demand for new payday loans. The high fee short-term loans cause many borrowers to take a new payday loan almost immediately after repayment because they are left with inadequate funds to meet other needs.
According to the study, 50 percent of all payday loans are taken by borrowers within one day after paying off an old loan, and 76 percent of payday loans are taken within two weeks of repayment. CRL found that in the U.S., this churning artificially creates demand for the product and inflates payday loan volume.
The report directly contradicts a common lending industry claim that payday loans are a short-term product used to meet occasional emergency needs. In fact, CRL found that only 2 percent of all loans are taken by non-repeat borrowers. The frequent and repeat borrowing traps consumers in a recurring cycle of debt that is difficult to leave.
Payday lenders clearly recognize the importance of repeat borrowers. Many offer free or highly discounted first loans to attract new customers with the goal of converting them to long-term borrowers. CRL estimates that nearly 59 million payday loans totaling $20 billion are a product of churning.
»Read the report
Predatory Profiling
That's the title of a new report by the Center for Responsible Lending, and it says that racial and racial and ethnic composition of a neighborhood is the primary predictor of payday lending locations. In comparison, racial and ethnic composition play a very minimal role in explaining the variation in the
location of bank branches.
As a result, the study says, payday lending storefronts are most heavily concentrated in
African American and Latino communities. By contrast, the location of mainstream financial service
providers such as banks can be largely explained by supply and demand factors such as the presence
of retail space.
“Study after study has demonstrated that
payday lenders are concentrated in communities
of color. A drive through minority neighborhoods
clearly indicates that people of color regardless
of income are a target market for legalized extortion. Payday lending is an economic drain that
threatens the livelihoods of hardworking families
and strips wealth from entire communities." –
Julian Bond, Chairman, NAACP
»Read the report
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APR – Annual Percentage Rate. Payday lenders say it is unfair to measure their loans by an annual rate. But Congress developed APR so that consumers can compare all kinds of credit options. Read the latest issue brief from the Center for Responsible Lending – and learn how payday lenders objected to requirements by the Federal Reserve Board.
"Colorado Payday Lending Update" describes recent developments that will shape the debate over Colorado’s payday lending law. The brief examines new annual data released by the Colorado Attorney General and the election results from ballot measures in Arizona and Ohio, where voters overwhelmingly supported meaningful reform of predatory lending.
For complete background on payday lending in Colorado, read "The Truth About Payday Loans: How Hard-Working Coloradans Take the Bait and Get Caught in a Cycle of Debt"
You can help reform payday lending!
If you have used a payday loan and been caught in a cycle of debt, tell us your story.
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