April 14, 2016 11:44 AM UTC

Heads Up: The Loan Sharks Are Back at the Colorado Capitol

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• by: Colorado Pols

An alert from the Bell Policy Center yesterday warns of a reprise of one of last year’s nastiest and least-expected battles in the Colorado General Assembly: another bill to allow subprime personal lenders, issuers of so-called “supervised” personal loans, to jack up interest rates on borrowers in no condition to afford it:

For the second year in a row, lobbyists for the financial services industry have waited until late in the session to introduce a bill that will benefit their clients at the expense of Colorado consumers and hard-working families.

In a session that’s supposed to be about protecting the middle class, Senate Bill 185 (Consumer Finance Charges Inflation Adjustment) would do exactly the opposite by raising the interest rates on what are called supervised consumer loans. Raising rate caps would lead to more high-cost and unaffordable credit products, hurting consumers and middle-class families.

Other than increasing profits for the out-of-state hedge fund that dominates Colorado’s market, there is no justification for this bill. Coloradans who depend on these types of loans deserve better.

In the coming days, we will be reaching out to explain how this bill will hurt Colorado consumers. Please don’t make things worse for Colorado’s working families and middle class. We urge a “no” vote on this harmful legislation.

At the tail end of the 2015 legislation session, the introduction and lightning-swift passage of House Bill 15-1390 through the Democratic-controlled House took consumer advocacy groups like the Bell Policy Center by surprise. Rallying opposition among Democrats in the Senate, and then fighting off Democrat-friendly lobbyists with a grassroots campaign publicly calling on Gov. John Hickenlooper to veto the bill, a scrappy coalition led by the Bell obtained one of only three vetoes issued by the governor in 2015. As a result of last year’s punishing blue-on-blue fight, we’ve heard that House leadership refused to allow another late bill to run through their chamber–hence the Senate bill introduced this week.

This year’s legislation is somewhat different than House Bill 15-1390, which permitted tiers of higher interest rates to be charged on larger loan amounts than current law. Senate Bill 16-185 would allow a huge increase in interest rates on amounts loaned by adjusting the loan amounts for seventeen years’ worth of inflation–from 2000 when these subprime personal loans were authorized though 2017. Thereafter the loan amounts subject to higher rates would increase annually by inflation.

The mechanism is a little different, but the intent is the same: to jack up interest rates on personal loans made to borrowers at the lower end of creditworthiness.

Several years ago, Colorado made significant reforms to another kind of subprime loan, so-called “payday loans”–converting them into a more sustainable product with repayment terms less likely to leave borrowers in an endless cycle of debt. Those reforms passed over tremendous pressure brought by lobbyists working for the lending industry. This blog took a personal interest in stopping loan sharks after we were inundated with payday lending spam just as the legislative campaign to reform that industry was heating up (bad move, spammers).

Today, the battle against predatory “supervised” lenders and their top-shelf lobbyists in the Colorado legislature has a lot in common with the payday lending reform fight. The subprime personal lending industry has made it a priority in particular to win Democratic support for legislation increasing allowable interest rates, arguing that the “access to credit” these loans provide is good progressive policy. Democratic Rep. Jovan Melton in the Colorado House sponsored last year’s bill and is the House sponsor of SB-185. The industry has made large donations to a number of prominent Democrats in the Colorado legislature, who then cast votes in favor HB15-1390. All of this information is public and waiting to be republished. Names waiting to be named.

Bottom line: we understand the mechanism by which this corrosive industry has gotten its hooks into otherwise good Democratic lawmakers. The credit access argument is seductive, turning the subject away from the outrageous fees and dubious business practices of these subprime lenders. Friendly faces they’ve known for years deliver the message. And of course, there’s the money.

But it’s wrong. Cozying up to predatory subprime lenders is terrible politics for so-called “progressive” Democrats. Contrary to the sob stories we’re about to hear in the legislature in favor of this bill, loan sharking is a booming business in Colorado and across America under existing laws. The driving force behind legislation to jack up interest rates on poor people is to increase shareholder value in the lending companies–not any beneficial purpose to the borrower.

If it has to get ugly again in order to teach this lesson to every single legislator under the Gold Dome, especially Democrats…cool by us. In fact, we’re going to help.

Be on notice.