Predatory
Lending
Executive
Summary:
The Colorado
Public Interest Research Group (CoPIRG), the Consumer Federation of America
(CFA), and other consumer protection groups have documented the effect of
financial deregulation on American consumers throughout the 1990's. One consequence
of deregulation of interest rates, high credit card interest rates and high
bank fees has been the rapid growth of the so-called fringe banking industry,
which includes check cashing outlets, payday loan companies, rent-to-own stores,
high cost second mortgage companies, sub-prime auto lenders, traditional pawn
shops and the growing business of auto title pawn companies. This report examines
payday lending in Colorado following the passage of the Colorado Deferred
Deposit Loan Act which authorized payday lending in Colorado and attempted
to set up protections for consumers seeking payday loans.
Last year
the Colorado General Assembly authorized payday lending with the passage of
The Colorado Deferred Deposit Loan Act (DDLA). Deferred deposit loans are
also called payday loans, they are small loans usually based on a personal
check held for deposit, or authority to directly debit the loan applicants
checking account. The loans are small but the Annual Percentage Rate can be
as high as 871%1 in some states. The DDLA was
adopted as an article in the Uniform Consumer Credit Code (UCCC), and took
effect on July 1, 2000. In 1992 the UCCC administrator determined that payday
loans or deferred deposit loans were supervised loans subject to the UCCC.
The debate in Colorado was only one of the ongoing debates surrounding payday
loans in states across the country. The passage of the DDLA created a sub-category
of lending and the regulations that apply to it; essentially authorizing payday
loans explicitly and attempted to set limits to protect consumers.
This report
provides background on the industry nation-wide, a brief update on the status
of payday loan legislation in states across the country, and a survey of 30
payday lenders in Colorado. The survey findings show that the DDLA has not
increased protections for consumers when taking out a payday loan. Payday
lenders in Colorado continue to make short-term loans of $100-$500 at legal
interest rates of between 182%-520%. The survey also shows that the national
trend of payday lenders exploiting new partnerships with national banks to
export the deregulated laws of the banks state of incorporation has found
its way to Colorado. ACE Cash Express who claims to provide small loans as
a service of the Goleta National Bank boldly states that it allows three (3)
rollovers when DDLA explicitly prohibits more than one (1) rollover of a payday
loan. The survey also shows that fee disclosure's required by the DDLA are
insufficient in alerting consumers prior to completing a loan transaction
to the pitfalls and high fees of a payday loan.
1
The State PIRGS, and Consumer Federation of America, "Show
Me The Money: A Survey of Payday Lenders and Review of Payday Lender Lobbying
in State Legislatures". February 2000.
