March 17, 2010

Payday lending bill passes committee

By John Gleason

On March 8 in an hours-long House committee meeting, legislators heard testimony from interested parties on House Bill 1351, a bill which would cap interest rates on the so-called “payday loans.”  These are short-term, small amount loans which can have annual percentage rates of up to 500 percent.

The hearing by the House Judiciary Committee started at 1:30 p.m. and legislators finally approved the bill, 7-4, several hours later. It contained one change.  If passed, the measure would go to the governor’s desk for signature rather than appearing as an initiative on the November ballot.  Jennifer Kraska, executive director of the Colorado Catholic Conference, gave testimony in support of the legislation.

“I was part of a group of faith-based participants … who testified,” she said, adding that “(Catholic) social teaching demands we watch out for the most vulnerable among us. We want to make sure that reasonable caps are put on payday loans.”

Speaking after Kraska was Deacon Becky Jones, an Episcopal deacon and officer of Jubilee Ministries, a group of social outreach organizations tied to the Episcopal diocese in Colorado.  She testified that some people cannot make rent or buy food because a large portion of their paycheck is going to pay outrageous debt amounts they find themselves in because of payday loans.

“Even if you’re never so desperate that you need to take out a payday loan, we all have a stake in not seeing these kinds of interest rates charged,” she said.

Throughout the afternoon, people told how they turned to payday loan institutions looking for money to tide them over a short period and ended up paying out much more. One such person was Denver resident Toby Serrano, who shared his testimony with the Denver Catholic Register.  Married with three children, the 46-year-old master auto technician told how he sought out a payday loan a year ago when the gas in his home was turned off.

“The economy hit my business hard,” he said, “and I had a few lean months. Like many others I live paycheck to paycheck.”

Serrano applied for, and received a $400 loan.  He gave the lending company a post- dated check for $480. On his next payday he went in and paid the $80 fee but had to roll over the loan in order to pay for rent and food.  That meant another $80 fee two weeks later.

“In the end, it took me five months to pay off the loan,” he said. “It cost me $780 in fees and interest to borrow the original $400.”

Serrano’s story involves a single loan, but there are others for whom a single loan is only the beginning. Corrine Fowler of the Colorado Progressive Coalition, a statewide advocacy group in the fields of economic, health and racial justice, told the Register the one-time user, while paying a good chunk of cash for that loan, is far from typical.

“The average loan borrower is taking out eight loans a year; half of those applicants taking out 12 or more, it clearly illustrates that this isn’t onetime emergency cash,” she said.  “This is multiple loans being taken out by a small number of people because they are stuck in debt.”

Fowler, who also testified before the committee, said the argument that a 36 percent interest cap would not only force the industry to fold shop and leave Colorado but would hurt  independent small businesses as well just doesn’t hold water.
“The numbers I got from the state attorney general’s office show a thriving small loan industry in Colorado before the corporate lenders came to town,” she said. 

In the mid 1990s there were about 200 non-traditional financial service outlets, according to Fowler.  These included pawn shops or rent-a-centers and mom and pop operations that cashed checks, wired money, provided a place to pay bills and advanced cash.  By 2001, 88 corporate entities, whose sole purpose was to advance cash in the form of payday loans, had set up shop in Colorado.  Three years later, 169 of the 200 mom and pop operations had ceased to exist.

“Today there are 500 corporate shops and 43 mom and pop operations in Colorado,” Fowler said.  “The small businesses got squeezed out.”

Kraska told the Register that, to her knowledge, no state which had imposed an interest cap on payday loans had seen any of the national lending outlets completely leave that state.

“The loans, what the industry terms ‘the lending product,’ is still available,” Kraska said.  “And there hasn’t been a state where the entire industry has shut down or issued pink-slips to all employees because they were legislated to work under guidelines which other lending institutions have to adhere to.”

House Bill 1351, sponsored by Rep. Mark Farrendio, D-Denver, and Sen. Chris Romer, D-Denver, now goes to the House for full discussion.

More Information

Coloradans for Payday Lending Reform: call 303-907-1980 or visit http://copaydayreform.com/
Colorado Catholic Conference: 303-984-8808 or visit www.co catholicconference.org
Office of Colorado Attorney General: www.coloradoattorneygeneral.gov