Consumers Saved $99 million in 2011 Under Payday Lending Reforms

(And they’ve stopped spamming us, too – promoted by Colorado Pols)



$99 million.

That’s how much Colorado consumers saved in 2011 thanks to changes in the state’s payday lending law, according to data in a report released Monday by Attorney General John Suthers.

The report shows the impact of the first full year of reforms, which were a major achievement of the 2010 legislative session. A key feature of the reforms is a minimum six-month term for payday loans, which gives borrowers an opportunity to pay them off without rollovers.

According to data in Suthers’ report, consumers saved an average of $223.90 per loan on 444,333 loans, for a total savings of $99.5 million. The report says that about 77 percent of loans were paid in full before their maturity date.  

The report also shows that the number of loans dropped almost 60 percent, from 1.1 million in 2010 to 444,333 in 2011; the dollar amount of those loans fell from $409 million to $167 million.

The numbers show that consumers had an easier time of managing the loans. In 2010, about a third of all loans were refinanced or rolled over, resulting in additional fees. In 2011, after the reforms, there were none.

“The attorney general’s report shows that 2010′s reforms are helping hard-working Colorado families. They are saving money, which will help meet basic needs, and this money will stay in the community,” said Rich Jones, the Bell’s director of policy and research, who worked on the reforms as part of Coloradans for Payday Lending Reform.

Here is a comparison of costs and fees after reforms, according to the attorney general, and costs and fees under the previous law:

Actual fees for 2011 (from AG’s report)

Origination fee           $40.37

Actual interest           $31.56

Monthly maintenance fee   $50.84

Total loan costs          $122.77

Cost under old law (from AG’s press release)

Number of loans (average 104-day borrowing period)   5.78

Cost per loan (average finance charge)   $60

Total loan costs (5.78 x $60)   $346.67

Savings under the new law

Savings per loan      $223.90

Total payday loans    444,333

Total statewide savings $99,484,678

11 Community Comments, Facebook Comments

  1. Serenitynow says:

    Sounds like good results from a much needed reform.

    Or is this excessive government regulation choking out small businesses?  I can never remember.

  2. Sir RobinSir Robin says:

    My bet is it went to home repairs, clothing, food…..you know, local vendors. Ok, maybe some went to Wal-Mart….chit!

    • TheBell says:

      We calculated the savings based the average costs of borrowing under the old law compared to the new law. According to the AG, in 2011 the average actual costs were $122.77 to borrow $379.39 for 104.48 days.

      In comparison, the AG shows that under the old law, the average finance charge was $60 for the average loan of $369. The average loan term was 18 days.

      Therefore, under the old law, borrowers would have had to pay the $60 finance charge every 18 days, or 5.78 times, to keep the loan out for a comparable 104 days. The total costs would equal $346.67.

      The savings per loan equals $223.90, or the difference between $346.67 and $122.77.

      We get the $99 million total by multiplying the savings per loan of $223.90 times the number of loans, 444,333.

      Under the old law most borrowers could not repay the loan in 18 days and either renewed or rolled over their loans.  For example, according to the AG, “… in 2008 59.80% of all payday loans written were ‘refinance-type’ transactions where the consumers remained indebted to the lender.”

       

  3. Diogenesdemar says:

    the Bell’s mathematical analysis specious, and this particular comment downright ridiculous . . .

    . . . consumers saved an average of $223.90 per loan on 444,333 loans, for a total savings of $99.5 million.

    . . . or, maybe, magical.  

    Since the highest amount that could be charged on any single loan in Colorado prior to this law change was only $75.00 (on a loan amount of $500.00), saving “$223.90 per loan” is a truly remarkable feat, wouldn’t you say?

    You guys available to tackle that national debt, too . . . ?

    • TheBell says:

      We calculated the savings based the average costs of borrowing under the old law compared to the new law. According to the AG, in 2011 the average actual costs were $122.77 to borrow $379.39 for 104.48 days.

      In comparison, the AG shows that under the old law, the average finance charge was $60 for the average loan of $369. The average loan term was 18 days.

      Therefore, under the old law, borrowers would have had to pay the $60 finance charge every 18 days, or 5.78 times, to keep the loan out for a comparable 104 days. The total costs would equal $346.67.

      The savings per loan equals $223.90, or the difference between $346.67 and $122.77.

      We get the $99 million total by multiplying the savings per loan of $223.90 times the number of loans, 444,333.

      Under the old law most borrowers could not repay the loan in 18 days and either renewed or rolled over their loans.  For example, according to the AG, “… in 2008 59.80% of all payday loans written were ‘refinance-type’ transactions where the consumers remained indebted to the lender.”  

      • Diogenesdemar says:

        how you calculated created fabricated your finding . . . and, my calling it “specious” was generous to a fault.

        You could have said, nearly as reliably, that “Colorado borrowers saved a half-billion dollars . . . we calculated those savings by figuring what borrowers could have paid if they paid a half-billion dollars more, but didn’t.”  Your fallacious assumption is that borrowers using the old law would have kept out their old loans for the same entire period that they kept the new different lower-cost longer-term loans open for under the new law.  They didn’t.  That is one thing these reports clearly show.

        The fact is, to use your line of reasoning but this time non-hypothetically, that according to these reports, in 2011 borrower’s paid about:

        $122.77 x 444,333 =  $55.4M for payday loans

        in 2010 under the old law (up through August 10), they transacted 1,110,224 loans and paid an average finance charge of $59.63.

        http://www.coloradoattorneygen

        1,110,224 x 59.63 = $66.2M

        Annualizing this cost to 12 months instead of 8 months

        $66.2M / 8 x 12 = $99.3M

        (Pause for a moment to notice that the entire total cost under the old law in 2010, if it had remained in effect, is about what you say borrowers “saved” in 2011 — neat trick, guys.)

        $99.3M – $55.4M = $43.9M

        that borrowers “saved” (annualized) between the last year of the old law and the first year of the new law.

        Now $43.9M is not chicken feed.  It’s a good savings.  One to actually be proud of.  No need to trump up some mis-assumed, hypothetical savings numbers really — unless you want to play at the same level of credibility as these lenders.  Do you?

        Now about that national debt . . .  

        • TheBell says:

          We appreciate your post and your method for calculating the potential savings.  It is a reasonable approach.

          Our intent was not to embellish the savings, only to calculate how much it would cost to borrow roughly the same amount of money for the same amount of time under the two approaches.  The difference is our $99 million in savings.

          Determining how much consumers actually saved as result of the changes in the payday lending law is complicated by the fact that the loans under the new law are different products than the loans under the old law.  The new loans have six-month minimum terms, thus giving borrowers some breathing room in repaying them.  The old loans were 18 day loans with balloon payments that often resulted in consumers needing to renew or essentially pay a fee to roll-over the loans until they could pay them off.  The longer time to repay the loan could result in a change in consumer behavior.

          A third way to look at it is to determine how much it would cost to borrow roughly the same amount of money for 18 days under each approach.  This is the average loan term for the old payday loans according to the AG.   Using this approach, borrowers would save $49 on an 18 day, $379 loan under the new law compared to the old law.  This is an 82 percent savings.  

          Costs to borrow for 18 days

          Origination Fee $6.00

          Interest $5.00

          Maintenance fee $0.00

          Total costs per loan $11.00

          Fee under old law $60.00

          Savings $49.00

          If consumers took out as many loans under this fee structure as they did before the reforms took effect roughly 1.5 million per year, the total savings would equal $73 million per year. If they took out half as many because they could afford to pay them back more easily the savings would total roughly $37 million.

          Again, there are several ways to try and determine the amount of savings to consumers under the new law.  We chose to compare the costs for borrowing for the same time frame – 104 days.  Clearly, the complicating factor is the extent to which consumers’ behavior changes as the loan terms change.

          One fact remains and that is Colorado consumers are much better off under the new law and are pocketing considerable savings.

          Now, please excuse us while we get back to working on the national debt.

          • Diogenesdemar says:

            Our intent was not to embellish the savings, only to calculate how much it would cost to borrow roughly the same amount of money for the same amount of time under the two approaches.  The difference is our $99 million in savings.

            . . . you can’t fairly, legitimately compare the cost of a reducing balance installment loan starting out at a given amount, with a series of non-reducing single-payment loans of that same starting amount over the same total term.  The borrower, in the case if the installment loan, only has that initial loan amount for a brief time — until they make the first installment payment.  With each additional installment payment, the loan amount (the amount the borrower still has in their possession) is less. Anyone who has ever had a car loan kind of understands this.

            Now, I said you can’t legitimately . . . you can use your method, and then anyone who knows anything about having loan is going to know you’re full of it.  It makes it less likely that they’re going to believe anything more that you would like them to hear.

            To assert that borrowers “saved” $99M in a year, when that’s the entirety of what was paid in the preceding year not only exposes your faulty mathematics, but stretches credulity, is easy defeated as an argument, and makes your overall message that these were vitally important reforms that need to remain in place, less — not more — likely to be well-received in the near future.

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