Aurora legislators hopeful for payday reform plan's passage
By SARA CASTELLANOS
Thursday, April 22, 2010
http://aurorasentinel.com/articles/2010/04/23/news/doc4bd066fcb2ba5549187903.txtAURORA | Toby Serrano knew he was in a financial bind when he was low on cash and borrowed $400 from a payday lending company in September 2009. What he didn't know was that the loan would end up costing him $1,100 total, and it would take him four months to pay it off.
"I knew I was entering into something I didn't want to, but at the time I didn't have any other avenue to get money," said Serrano, who lives in north Denver. "It turned into a nightmare."
He is now an ardent supporter of a state bill making its way through the Legislature to limit the annual interest rate that payday lenders can charge to 45 percent.
Currently, lenders charge an average of 300 percent annual interest on all loans.
Opponents say House Bill 1351 would cause Colorado's payday lending industry to completely leave and more than 1,000 jobs would be lost if it passes. But supporters like Serrano say the bill is long overdue.
"People are going into it thinking they're getting out of debt, but what they are really doing is creating additional debt," said Serrano, an auto mechanic who works on commission. "I think (the bill) is going to benefit Colorado and its residents."
Serrano said he needed the loan last year to pay for his heating bill.
"I ran into a real slow time and my gas got turned off," he said. "I had children in the house and I had no choice but to do what I had to to get my gas turned on."
The bill, sponsored by state Rep. Mark Ferrandino, D-Denver, originally stated it would cap the interest rate at 36 percent, but it has been amended as it has gone through House committees.
State Rep. Su Ryden, D-Aurora, and Sen. Morgan Carroll, D-Aurora, are also co-sponsors of the bill, which would allow lenders to charge a $50 fee per year and up to a $50 loan-origination fee.
It passed third reading in the state House in a narrow vote of 33 to 31 April 19, and will head to the Senate at a date to be determined.
The payday loan industry in Colorado would suffer immensely if this law goes into effect, said Ron Rockvam, president of the Colorado Financial Service Centers Association and the owner of five payday loan businesses.
"It will wipe out the payday lending industry in the state," he said. He said the bill would reduce the fees that payday loan businesses are currently allowed to charge by 88 percent. "I don't know of any industry that can sustain an 88 percent hit in their revenue and stay in business. Certainly we can't in this industry."
About 1,600 people are employed statewide in the payday lending industry, and Colorado residents would be losing a valuable service if the industry disappeared, he said.
About 300,000 people used payday loan services in 2009, he said, and the numbers have grown steadily over the past few years, he said.
"Our consumers are very capable of making these kinds of decisions," Rockvam said. "When things are tight these people are very good at making the best most economical decision for their families."
The average person who uses payday loan businesses in Colorado refinances the loan five times before paying off the original loan amount, according to the Colorado attorney general's office. In 2009, the average borrower paid $475.73 in total finance charges to borrow $366.97.
Studies by the Colorado Progressive Coalition show there are more than 50 payday lending businesses in Aurora, which is higher than most cities, and they tend to attract Hispanic populations.
"A lot of newcomer Latinos aren't aware of all the financial options available to them," said Corrine Fowler, the coalition's economic justice director. "We think it's so predatory on the Latino community."
There are about 70 payday lending businesses in Denver, 65 in Colorado Springs, and less than 20 in Lakewood, Fort Collins, Englewood and Northglenn, according to Fowler.
Aurora residents have recently received robocalls from payday lending companies urging state Rep. Karen Middleton, D-Aurora, to oppose the bill. However, Middleton says the calls have actually prompted voters to call and urge her to support the bill.
"Overwhelmingly what I'm getting is people calling me and saying stop these calls to me, thinking I'm calling them, or they're saying support the bill," said Middleton, who has already committed to supporting the bill. "It's a little bit of overkill but it's actually having the opposite effect."
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