Attorney general ruling backs reform of payday lending

Payday borrowers scored a major victory Tuesday when the Colorado Attorney General's Office revised rules for implementing the payday lending law adopted this past legislative session (HB 10-1351). The new rules state that all charges and fees, including the origination fee, must be refunded on a pro-rata basis if a loan is paid off early. A previous version of the rules stated that the origination fee was not refundable.

"This is a major victory for borrowers," said Scott Martinez, vice-chair of the Bell's board of directors, who testified at the rule-setting hearing. "The Bell and our allies have been pushing for this kind of consumer-friendly change for more than three years now, and we finally got it."

"Our concern all along has been to reduce the outrageous fees borrowers pay and to eliminate the cycle of debt many find themselves in because of how payday loans are designed," said Rich Jones, the Bell's policy director. "This is a unique approach that hasn't been tried anywhere else in the country, but with these final rules now in place, we are confident we have accomplished what we set out to do."

The Council of Advisors on Consumer Credit, the administrative panel convened to formally adopt the rules, affirmed the new rules. Starting Nov. 29, all payday lenders must abide by them when issuing loans. The new rules will save borrowers money and will remove the incentive for lenders to entice borrowers to pay off a loan early so they can sell them another one and charge a new origination fee.

The rules are consistent with the administrative interpretation issued by the Attorney General's Office in June. At that time, staffers acknowledged a conflict in different parts of the payday lending statue but came down in favor of refunding the origination fee. After talking with several legislators, the Attorney General's Office issued another administrative interpretation in July, ruling that the legislature did not intend the origination fee to be refunded.

Coloradans for Payday Lending Reform, with the Bell as one of the lead groups, submitted written comments showing how allowing the origination fee to be refunded was consistent with the language of HB 1351 and other sections of the existing payday lending statutes.

In addition to Bell Vice-chair Martinez, Rep. Mark Ferrandino and Sen. Chris Romer, prime sponsors of HB 1351, testified in support of making the origination fee refundable. They affirmed that their goal in passing the legislation was to eliminate the churning of loans that trap too many Coloradans in a cycle of debt. The council also reviewed a five-page opinion from Gov. Bill Ritter's legal counsel that made a strong argument that the origination fee should be refundable.

Corrine Fowler of the Colorado Progressive Coalition, another leader of the Coloradans for Payday Lending Reform coalition, told the panel that the coalition's prime objective was to reform payday lending and that the rules as drafted could have resulted in borrowers paying more under the new law than under the old law.

After the public hearing, Laura Udis, assistant attorney general and administrator of the Uniform Consumer Credit Code, reviewed the legal arguments presented and recommended changing the rules to allow the origination fee to be refunded if a loan is paid off early. The Council of Advisors on Consumer Credit voted unanimously to accept the revised rules.