Proposed payday 'fix' raises cost of loans, re-opens door to debt trap
Last year, the Colorado legislature reformed payday lending in Colorado. It was one of the major achievements of the 2010 session, and borrowers are better off today because lawmakers cast an important vote for consumer protection.
Payday lenders fought these efforts and are back this year, trying to undo last year's important work.
The showdown is Tuesday, when HB 1290 will go before the Senate Finance Committee.
The bill, introduced on behalf of the payday lending industry, proposes a "technical fix," but there's nothing technical about it. The intent is to remove a central provision of last year's bill.
This so-called fix would make the origination fee on loans non-refundable. Doing that would increase the costs to borrowers who pay off their loans early. Once again, it would provide a strong financial incentive for lenders to churn loans by enticing borrowers to pay off one loan so that a new one, with another round of fees, can take its place.
Last year's reforms appear to be working. The loans are still expensive, but a six-month payback period, along with the pro-rated refundable origination fees, gives borrowers a reasonable chance to repay loans.
The changes were fully implemented only last fall, and we have limited data on their effects. However, preliminary feedback from borrowers indicates that the loans are more affordable.
These reforms helped consumers without driving the payday lending industry out of Colorado. There are about 350 payday lenders operating in Colorado. In fact, the chief executive of EZ Pawn, a publicly traded payday lender with 40 stores in Colorado, told investors in November about last year's reforms: "We're about two and a half months into that product and we are frankly happy, very happy with what is going on there. Our loan balances are where we expected them to be and our bad debt is actually slightly better than where we expected it to be."
Rich Jones, director of policy and research for the Bell, testified against this bill, and will testify in the Senate. Here is his House testimony.
If you haven't raised your voice on payday lending in Colorado before, now is the time. We urge you to contact members of the Senate Finance Committee. Tell them that last year's reforms are working. Tell them to vote NO on the technical fix.
Sen. Greg Brophy, R-Wray
Sen. Mark Scheffel, R-Parker