Senate OKs crackdown on payday loans
by Joe Hanel
Herald Denver Bureau
Saturday, May 01, 2010
DENVER - Amid warnings of mafia violence, the state Senate passed a revamped bill Friday to cut the interest rate on payday loans.
The 18-17 vote on House Bill 1351 means that payday loan reform is very close to passage after failures in previous years.
The House will have to agree on a major rewrite by the Senate before the bill can become law.
As passed by the Senate, it would end payday lending in its current form of short-term, high-interest loans. The bill now would allow loans of up to $500 on a six-month term with a 45 percent annual interest rate, although borrowers could pay the loan back earlier.
If a borrower takes all six months to pay back the loan, interest and fees would reach $347.50 on a $500 loan, said Sen. Rollie Heath, D-Boulder, who crafted the new plan.
Despite the high fees, the bill ends the practice of taking out new loans to repay old ones, which creates a "cycle of debt" for borrowers, Heath said.
Republicans said the bill, even in its new form, would drive the payday lending business out of Colorado. In its absence, mafia loan sharks would move in, said Sen. Al White, R-Hayden, during debate Thursday night.
"You know who makes these loans when this legitimate industry is not here? Organized crime makes these loans. And you know how they collect? They don't go to court. ... They send Willy the enforcer out to your house," White said.
Sen. Lois Tochtrop, D-Thornton, was one of three Democrats who voted against the bill. She agreed with White on Friday.
"Do we want organized crime to come into this state? And folks, it's going to happen," Tochtrop said. "And (borrowers are) going to have broken legs, and they're not going to have money to get that fixed, either."
Sen. Morgan Carroll, D-Aurora, voted for the bill and said she doubts it will drive the payday lending industry away. The bill still allows higher interest rates than banks and other finance companies can charge, she said.
"Usury laws exist for everybody else for a reason. Even a 45 percent interest rate is very high," Carroll said.