Did John Suthers Sell Payday Lending Reform Out?

The brewing controversy over proposed new rules from Attorney General John Suthers governing the payday lending industry takes an ominous turn today, with new details reported by the Grand Junction Sentinel’s Charles Ashby:

Under the old law, those fees and rates could amount to as much as 520 percent per year. The new law limits fees to $7.50 a month for every $100 loaned, and an interest rate of no more than 45 percent.

In a letter to Attorney General John Suthers’ office this week, [Ritter administration attorney Craig] Welling said one rule could result in fees and rates far higher than allowed under the old law.

“A borrower who repaid a loan … would pay a $60 nonrefundable finance charge (on a $300, two-week loan) as well as $5.19 in prorated interest, for a total 565 percent annual percentage rate,” Welling wrote.

“Increasing the annual percentage rate from 520 percent to 565 percent would frustrate legislative intent to the point of absurdity.” [Pols emphasis]

To recap, the Sentinel reported over a week ago that Suthers accepted north of $10,000 from various donors tied to the payday lending industry at the same time his office was drafting new rules governing payday lending–rules mandated by the passage in the legislature this year of House Bill 1351, a long-sought reform bill of this predatory (and spammy) industry.

It’s not illegal for Suthers to take donations from an industry he’s regulating, but the timing of the donations, and the fact that Suthers had never received significant amounts of money from payday lenders before this time, raises very straightforward conflict-of-interest questions.

But we’ve said from the first report on this controversy that the real problem for Suthers would come with specifics about his proposed rules that appeared to favor the payday lenders who made these donations. This article does note an objection from payday lenders to the proposed rules–apparently they’re obligated to recommend other lenders if they cannot offer certain payment terms to customers. Something tells us that’s not as big a deal as payday lenders being able to charge more money now than they could before payday lending reform legislation passed.

No, the question of whose bread got buttered here–or mutually so–is getting kind of urgent.

13 Community Comments, Facebook Comments

  1. H-man says:

    The difference, besides the letter behind their names on the ballot, between payday lenders and Suthers and Bankers and Bennet is exactly what?

    • Froward69 says:

      stop rubbing it in… I know, I know. Dems should have gone with Romanoff.

      • H-man says:

        I just thought a little bit of consistency might be in order.  If it is great policy to be paid off by people with business before you for one party it is great policy for both.  I think we both agree it is not great policy for either, but ColoPols seems to have a rather short attention span

        • JeffcoBlueJeffcoBlue says:

          So Bennet has complete responsibility for drafting the rules that result from the legislation he voted for. Shit, who knew! He’s a Senator and an executive branch administrator, too! Wait that isn’t possible is it?

          In my right hand I have an apple. In my left, and orange. They’re not the same, despite your insistence to the contrary.

          • H-man says:

            So it is OK for Bennet to take money from people who have business before his committee to influence his vote, but it is not for Suthers?

            He gets to vote, doesn’t he or has he given that to Obama for donations and just forgot to tell anyone?  Trevor?

            • JeffcoBlueJeffcoBlue says:

              That kind of donation would be illegal.

              But it’s a separate argument, and it’s irrelevant. These are two completely different parts of the process. This would be more like taking legislation Bennet voted for (as he did vote for banking and credit card reform) and having a bureaucrat gut it after the fact.

              As I said, apples and oranges. And what Suthers may have done here is much worse either way.

              Nice try though!

  2. marc sobel says:

    You know, money is speech, he’s all for free speech, he’s even for paid speech,(honoria)

    And free markets, because nothing is free.

    And quid pro quo.  Because $10,000 is a lot of tat.

    The bad news is that he is apparently for sale, the good news it that he is apparently cheap.

  3. Interlocken Loop says:

    How stupid can John Suthers, his top advisers and political consultants be?  Suthers was headed to a twenty point win until this issue came along.  

    • But Suthers certainly doesn’t need the taint of a political payoff dragging down his campaign.

      Beyond that, though – the Legislature clearly made a law with the idea that they wanted to reduce fees/interest charged by payday lenders.  Suthers is poking them (and consumers) in the eye with these rules; clearly he isn’t interested in consumer protection, which is one of his prime duties.

  4. Diogenesdemar says:

    as much as I hate to do this, here’s the new HB1351 language as it was signed into law.

    I have broken it up into groups of sentences (that I have numbered 1, 2, and 3) which I will analyze, to follow.  The good news is that it takes neither a law degree, nor an advanced understanding of mathematics to understand what has occurred.

    Section 5-3.1-105  Authorized INTEREST RATE.

    1.  A lender may charge a finance charge for each deferred deposit loan that may not exceed twenty percent of the first three hundred dollars loaned plus seven and one-half percent of any amount loaned in excess of three hundred dollars.  Such charge shall be deemed fully earned as of the date of the transaction.

    2.  THE LENDER MAY ALSO CHARGE AN INTEREST RATE OF FORTY-FIVE PERCENT PER ANNUM FOR EACH DEFERRED DEPOSIT LOAN OR PAYDAY LOAN. IF THE LOAN IS PREPAID PRIOR TO THE MATURITY OF THE LOAN TERM, THE LENDER SHALL REFUND TO THE CONSUMER A PRORATED PORTION OF THE ANNUAL PERCENTAGE RATE BASED UPON THE RATIO OF TIME LEFT BEFORE MATURITY TO THE LOAN TERM.

    3.  IN ADDITION, THE LENDER MAY CHARGE A MONTHLY MAINTENANCE FEE FOR EACH OUTSTANDING DEFERRED DEPOSIT LOAN, NOT TOEXCEED SEVEN DOLLARS AND FIFTY CENTS PER ONE HUNDRED DOLLARS LOANED, UP TO THIRTY DOLLARS PER MONTH. THE MONTHLY MAINTENANCE FEE MAY BE CHARGED FOR EACH MONTH THE LOAN IS OUTSTANDING THIRTY DAYS AFTER THE DATE OF THE ORIGINAL LOAN TRANSACTION.

    The lender shall charge only those charges authorized in this article in connection with a deferred deposit loan.

    1.  This clause is the exact same clause that has been payday lending law since 2000.  It is these charges on 14-day loans that yield an APR in excess of 520% for payday loans.  (The previous law limited the term of payday loans to forty days.)

    This clause was originally deleted in the first version of the bill that was introduced and passed by the Colorado House.  The clause was re-inserted into HB1351 by the Senate, as an amendment, at 7:00 p.m. on the night before third reading the next morning.

    2. The second clause was the heart of HB1351 as it originally passed out of the Colorado House.  It calls for interest on the loan amount at a rate of 45% per annum.

    3.  This third clause calls for monthly maintenance fees of up to $30.00 dollars per month for each month the loan is open.  

    The third clause was also appended to HB1351 in the Senate, by amendment, at 7:00 p.m. on the night before the third reading the next morning.

    So, after it came out of the senate HB1351 called for:  1. The same rate of charges as was already in effect  plus  2. another 45% per annum  plus  3.  additional monthly maintenance fees.

    or,     A + B + C  >  A

    Where “A” is the old rate of charges,

    “B” is an additional 45% per annum,

    and “C” is new monthly maintnenance fees.

    That’s not so hard to understand, is it?  

    So, then you’ve got to be some kind of idiot or oblivious moron to claim to not understand that if you add additional fees and interest to an existing amount (over the same 14-day term) that you’re going to come up with a larger amount in that particular case.

    The only thing that’s “absurd” here is that now, after the bill has been introduced, amended, passed, and signed by the Governor, that some folks are able to claim with a straight face, “that wasn’t our legislative intent.”  (OK, I don’t know what their intent does, no one does.  What I do know is that the bill they wrote isn’t reflective of their claimed intent in all cases, and it’s a damn shame that the folks involved weren’t smart enough, or clear enough, to understand that.)

    Class dismissed.  Be sure to wash your hands, lawyers and politicians were involved here.

     

    • JeffcoBlueJeffcoBlue says:

      I’m going to look into it tomorrow when I’m less bleary. How is it, though, that you are the first person who has ever mentioned this problem, and wouldn’t the governor’s attorney also know it? Wouldn’t the payday lender who swore this bill would put them out of business, AFTER it passed?

      And what is your intense interest in this, if you don’t mind my asking?

      • Diogenesdemar says:

        first with simply, “I am Diogenes. I am just looking for an honest man.”  And, also that I am intensely interested in flyfishing, but not for any particularly good reason.

        I’m fairly certain that the governor’s attorney does understand this.  He or she is pointing out a “worst case” scenario, and not commenting broadly upon the new law.  You’ll have to ask him or her what the particular motivation might be.

        More generally, It could be slightly more expensive for a borrower to pay off an HB1351 immediately upon their first payday (and even up to thirty days since many payday lenders were writing loans for up to one month under the old law.)  After thirty days, the HB1351 loans become cheaper for borrowers than it would have been for them to transact a series of consecutive loans.

        It is much cheaper, in fact, for borrowers to get one loan for six months under the new HB1351 fee structure than it is to get a consecutive series of loans every two weeks for six months under the old fee structure.  That is what the lender’s don’t like.  (This is the “problem” that HB1351 “fixed.”  It did not “fix” every “problem,” and in fact has created a couple of new, albeit generally smaller, problems for the less frequent borrower.)

        What the lenders will now try to do under HB1351 is encourage people to pay off these new loans as quickly as possible (and earn that large clause 1. origination fee that is fully earned as of the date of the transaction) so that they can then write the borrowers a new loan with a new origination fee.

        Keep in mind, too, that this law, and the previous law don’t stipulate “the rate that must be charged,” but rather the maximimum rates that can be charged.  Lender’s don’t “have to” collect more than they would have under the old law for people who pay in full very early in the loan term (i.e., within the first thirty days).  I am of the opinion that some lender’s obviously will charge every penny that the new law permits in every circumstance, and that some other lender’s will waive some or all of the additional HB1351 interest for people who pay off very early — not so much out of altruism, but rather as an “incentive” to get people to pay off early in the hopes that they will transact another loan sooner.

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