DENVER—The Colorado House gave initial approval Thursday to a bill that would limit payday loan rates after lawmakers argued borrowers were getting into vicious cycles of debt.
House Bill 1351 would limit interest rates to 45 percent annually, down from a maximum 300 percent. It also would allow lenders to charge a $50 fee once a year.
“This is trying to end the cycle of debt we see so much in this industry,” said Rep. Mark Ferrandino, a Denver Democrat who sponsored the bill.
Rep. Max Tyler, a Lakewood Democrat, said the industry makes a living off the misery of others.
“This is not an emergency loan. This is a way to keep people trapped in a cycle of debt,” Tyler told the House.
Opponents said the bill could cost jobs at the 487 payday loan offices across the state, forcing borrowers to go to unregulated lenders.
“This legislation kills 1,600 jobs in Colorado,” said Rep. Steve King, a Republican from Grand Junction.
Payday loans are short-term, high-interest loans that are effectively advances on a borrower’s next paycheck.
Proponents say the market has shown a need for short-term, small-dollar loans that aren’t generally available from banks or credit unions, especially with traditional lenders being more conservative in the down economy.
But a growing backlash against payday lending practices has prompted legislatures around the country to crack down on the businesses.
Arizona lawmakers are on the verge of shutting down the industry in the state. A Washington state law this year capped the amount of payday loans and the number that a borrower can take out in a year. Wisconsin has considered whether to regulate the industry.
In 2008, voters in Arizona and Ohio rejected measures that would have allowed payday lenders to continue charging high annual interest rates.
The Colorado attorney general’s office reports the average payday borrower in Colorado refinances the same loan five times before paying off the original loan amount. In 2009, the average borrower paid $475.73 in total finance charges to borrow $366.97.
The Colorado House bill faces a third reading before it goes to the Senate.
Ferrandino said other states that have cracked down on payday loans haven’t lost jobs.
“Even Arizona, which will soon prohibit payday lending, is not expecting a mass closure of these shops or a loss of jobs,” he said.
