State officials are concerned that a loophole in Colorado law is allowing payday lenders, which bill themselves as providers of short-term financial help, to keep cash-strapped customers coming back to their stores.
State Rep. Jim Riesberg, D- Greeley, said he plans to introduce legislation in January to close the loophole.
The oft-criticized payday- lending industry, which is regulated by the state attorney general’s office, provides quick cash loans up to $500 for fees that translate into annual interest rates as high as 520 percent.
State law allows payday operators to charge a fee of up to 20 percent of the first $300 of a loan and an additional 7.5 percent on the remainder.
A customer borrowing $200 is generally required to pay back the loan plus a $40 fee within two weeks.
However, that customer can “roll over,” or extend, the loan by paying only the $40 fee after two weeks. The borrower is then on the hook for the original $200 loan and another $40 fee.
In an effort to prevent a consumer from repeatedly paying the fee every two weeks, the state enacted legislation in 2000 that limits a borrower to one rollover.
In many cases, lenders require the borrower to pay off the loan after the rollover has been used, then allow the customer to immediately take out another loan. The result is that many customers borrow money from payday lenders for months or even years.
“That’s a potential problem with the current law,” said Laura Udis, first assistant attorney general for the state’s Uniform Consumer Credit Code unit, which licenses and oversees payday lenders. “It doesn’t address the situation where a consumer pays off the loans and turns around and borrows the money again.”
The practice isn’t illegal.
Payday lenders argue that consumers face similar financial problems with credit cards and other debt payments.
“It’s unfortunate that people get stretched, but it does happen,” said Jabo Covert, vice president of government relations for Check Into Cash, which operates more than 40 stores in Colorado.
Riesberg is also concerned about the interest rate Colorado allows lenders to charge, which is among the highest in the country.
Riesberg said he is studying laws in other states to determine how to curb the rates and prevent payday lenders from circumventing the law.
Fifteen states prohibit payday lending, according to the Consumer Federation of America, a national consumer advocacy group. Nine states don’t have caps on the fees payday lenders can charge. The rest have caps that range from 5 percent to 75 percent of the loan, with most states allowing 15 percent.
Despite concern from consumer advocates and state officials, consumers lodge very few complaints against payday lenders.
The Denver/Boulder Better Business Bureau has four complaints against payday lenders, spokeswoman Susan Liehe said.
The state’s Uniform Consumer Credit Code unit has received 41 written complaints against the industry since September 2000 for overcharges and collections practices, Udis said. That’s out of a total of 1,388 written complaints received by the unit, which also oversees some mortgage lenders and other finance companies.
Officials with the BBB and the state credit unit say the number of complaints isn’t indicative of problems with payday lenders.
“Written complaints to us don’t really tell the whole picture,” Udis said, adding that many consumers may not know they’re getting overcharged or where to file a complaint.
