HB 1310, proposed by Rep. Mark Ferrandino, D-Denver, sets “reasonable regulations” on the payday loan industry, Ferrandino said. However, some of the state’s payday loan owners and the industry’s lobbyists say the bill places an unworkable interest rate on the companies and a one-loan scenario unworkable for customers.
The bill passed the House Feb. 25 with a 33-30 vote, with two absences, said Ferrandino. The bill now sits in the Senate’s judiciary committee. Ferrandino expects the to see another close vote.
 Dan Gray of Colorado West Quick Cash will travel to Denver today to meet with lobbyists and legislators to discuss a piece of legislation that he considers to be unreasonable for the payday loan industry. The bill, which passed the House last week, would cap interest rates for payday loans and limit borrowers to one outstanding loan. (Barton Glasser / Daily Press) Advertisement |
As the bill is currently worded, on each loan, the interest rate could not exceed 45 percent, a standard for other lenders such as credit cards and banks.
“The interest rate is not workable for us to remain in business,” said Dan Gray of Colorado West Quick Cash in Montrose. Gray is at the capitol today explaining his position. “Because of our default rate, we can’t operate under those rates. We lend to high-risk people and service a segment of the population that has no place to turn. That is why we need a higher rate.”
Gray said the industry estimates that about 5 percent of payday customers don’t pay back their loan. If they have a $500 loan, he said it will take 10 good loans to make up the loss.
Ferrandino, however, said the company’s high rates increase the possibility that customers will have to roll over their debt — getting another loan to pay off their first loan — taking them into a recurring cycle. The average person spends five and a half months in this cycle, he said.
“I think (the bill) is an important piece of legislation to help end the cycle of debt,” Ferrandino said.
The bill also states that a payday loan company can’t “knowingly” lend to a person who has outstanding loans with the lender or any other lender. When the bill was first introduced, it would have regulated lenders by making them submit the client’s information into a database. The database would be paid by the lender and civil penalties could be charged against the lender for failure to use the database.
However, Ferrandino said the database component of the bill has been removed because of privacy concerns. Lenders still could not “knowingly” lend more than one loan.
Gray said limiting a customer to one loan is “unworkable” for the customer because the loans are already capped by the state at $500.
Supporters of the bill argue that some customers demonstrate a model of good payday lending — they borrow what they need and then pay it off. Others, though, will use the system, building up high interest with several different payday loan offices and fall into the “cycle of debt.”
To aid customers in this situation, legislators passed a bill effective July 31, 2007 which requires lenders to provide an extended payment plan.
Gray said that bill has affected his bottom line by 25 percent because it gives people the opportunity to pay off their loan interest free. The person qualifies when they have four consecutive loans with one particular lender.
Ferrandino said payday lenders are finding ways around the law and discouraging customers from using the program.
He doesn’t deny that the bill may put some payday loan offices out of business, but he said those who survive will have more customers. A similar bill passed in Oregon decreased the number of offices by two-thirds.
He said the growing number of payday loans over the past eight years is proof that the industry is profitable and growing out of control.
“It just seems like an issue we need to get a handle on,” he said.
Currently there are 10 payday loan companies in Montrose, most of which have opened in the past eight years.
Contact Kati O’Hare via e-mail at katio@montrosepress.com
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