March 28, 2011 06:17 PM UTC

Battle Lines Forming, Suspicions Growing Over "Payday Payback"

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• by: Colorado Pols

As the Colorado Independent’s Joseph Boven reports, a curious disagreement over what happened last year with the passage, then implementation, of long-sought legislation to reform the controversial payday lending industry in this state:

The battle over payday loan fees will strain partisan loyalties at the Legislature again this year as new legislation was introduced Friday in the House. While former payday loan bill sponsor Rep. Mark Ferrandino, D-Denver, said the new legislation would roll back last year’s improvements, Senate sponsor of this year’s bill Sen. Rollie Heath, D-Boulder, said the new bill does exactly what he meant to do last year.

“It is doing what I thought we had done a year ago,” Heath told the Colorado Independent. Heath, who says he remains interested in creating a fair marketplace for payday lenders and customers, said “the Attorney General’s office misinterpreted what I thought I had negotiated.”

Ferrendino wholeheartedly disagreed with the move made by Heath to strip what he said was the heart of his bill.

“[The new legislation] basically guts the intent of the bill. One of the main reasons that we [made origination fees refundable] is that it disincentivizes the lender to to churn the loan,” Ferrandino said…

A chart, provided by Coloradans for Payday Lending Reform, shows the cost of a $300 loan held for 30 days would increase from $21.75 under current law to $71.25 under the new legislation. When figured in terms of APR the loan jumps from 86 percent to 289 percent.

Ferrandino and others fear that allowing lenders to keep the origination fee regardless of how soon a loan is paid back will cause them to develop loan products that would lead to individuals returning time and again for loans.

With all due respect to Sen. Rollie Heath, our recollection of events here solidly backs up Rep. Mark Ferrandino. Last August, the implementation of House Bill 10-1351 became heated after Attorney General John Suthers published draft rules that would have allowed payday lenders to keep the full amount of this “origination fee,” even if the loan was paid off early. As we and many others noted at the time, this would have had the effect of making payday loans more expensive to consumers, not less, and left “reform” of the industry in a state that actually increased their profits. Ultimately, after exhaustive hearings (and contributions to Suthers’ reelection campaign from the industry became an issue), final rules were adopted that made this fee refundable on a pro rata basis. Which, as Rep. Ferrandino says above, was always the intent.

Our interest in payday lending reform legislation, as we’ve said from the outset, stems from the endless payday lending spam we battled against for years in our comment threads. This spam has mostly stopped since then, but any industry that relies on advertising methods that sleazy and irritating–not to mention the foolishness of spamming the state’s biggest political blog while reform legislation was debated–deserves what it gets.

In any event, the payday lending industry has not gone out of business in Colorado under these new rules. Consumers now have the time they need to pay off these loans without plunging back into cyclical debt, and the pro-rated origination fee gives them an incentive to pay them off early if they can. The only reason to apply this “fix” is to increase payday lenders’ bottom lines, on what remains the highest-interest financing legally available in Colorado.

And make no mistake–whatever Rollie Heath’s interest, the payday loan industry knows who they are counting on to pass this legislation. They knew a year ago, in fact. As we discussed in detail last fall, and the Independent doesn’t let the reader forget today:

ACE Cash Express, headquartered in Irving, TX, contributed $26,000 to both the Republican Senate Majority Fund, LLC and Coloradans for a Better Future (CBF), a 527 group registered under Andy Nickel who also was the registered agent of Colorado Citizens for Accountable Government (CCAG). Last year CBF received $50,000 from the Senate Majority Fund, LLC.

The majority of CBF’s money was used for two advertisement expenditures to Strategic Media Placement LLC.

As the Colorado Independent reported, CCAG sent out mailers accusing Democratic House Rep. John Soper of wanting to release sex offenders from prison and implied that Soper would turn them loose in the district’s school yards…

Here are the Democratic co-sponsors of House Bill 1290: Jim Riesberg, Ed Casso, and Sue Schafer in the House, and Heath, Mary Hodge, and Lois Tochtrop in the Senate. These are the Democrats who are joining forces with Republicans Dave Balmer, Larry Liston, Bob Gardner, Chris Holbert, Jim Kerr, Ed Massey, B.J. Nikkel, Amy Stephens, and Keith Swedfeger in the House, and Senate Republicans Greg Brophy and Mike Kopp, to give payday lenders a payback at the expense of the state’s most economically vulnerable.

The Republicans at least have an excuse. Perhaps John Soper will ask these Dems for theirs.