Pay­day loan re­forms get out­flanked

The Denver Post - - BUSINESS - By Erin Dou­glas

Colorado passed ground­break­ing re­forms on pay­day lend­ing in 2010 that were held up as a na­tional model. But a group that op­poses abu­sive lend­ing tac­tics says bor­row­ers and busi­nesses that make the high-in­ter­est loans in­creas­ingly are ma­neu­ver­ing around the law.

Pay­day loans — char­ac­ter­ized by high in­ter­est rates and fees and short pay­ment pe­ri­ods — are dis­pro­por­tion­ately made to those liv­ing in low-in­come neigh­bor­hoods and com­mu­ni­ties of color, and mil­i­tary per­son­nel liv­ing pay­check to pay­check, ac­cord­ing to the Colorado at­tor­ney gen­eral’s of­fice. Many bor­row­ers get trapped in cy­cles of debt when they keep bor­row­ing to make ends meet.

A 2010 state law put strict rules on lend­ing that lim­ited the amount consumers could bor­row, out­lawed re­new­ing a loan more than once and gave bor­row­ers six months to re­pay. The law dras­ti­cally re­duced the amount of bor­row­ing from pay­day lenders — drop­ping it from 1.5 mil­lion loans to 444,333 from 2010 to 2011 — and Colorado was hailed as a leader in reg­u­la­tion for an is­sue that had bi­par­ti­san sup-

port.

But since the reg­u­la­tions, lenders and bor­row­ers found a way around them: Rather than re­new­ing a loan, the bor­rower sim­ply pays off the ex­ist­ing one and takes an­other out the same day. These back-to-back trans­ac­tions ac­counted for al­most 40 per­cent of pay­day loans in Colorado in 2015, ac­cord­ing to the Colorado AG’s of­fice.

A re­port re­leased Thurs­day by the Cen­ter for Re­spon­si­ble Lend­ing, a non­profit re­search and pol­icy group that op­poses what it calls preda­tory lend­ing tac­tics, points out that the tac­tic has steadily in­creased since 2010. Re-bor­row­ing in­creased by 12.7 per­cent from 2012 to 2015.

“While the (re­form) was help­ful in some ways, the law was not suf­fi­cient to end the pay­day lend­ing debt trap in Colorado,” Ellen Har­nick, west­ern of­fice di­rec­tor for CRL, said dur­ing a con­fer­ence call Thurs­day.

Colorado consumers paid $50 mil­lion in fees in 2015, the CRL re­port said. And with the in­crease in back-to­back bor­row­ing, the av­er­age bor­rower took out at least three loans from the same lender over the course of the year. One in four of the loans went into delin­quency or de­fault.

Pay­day loans dis­pro­por­tion­ately af­fect com­mu­ni­ties of color, ac­cord­ing to CRL’s re­search, and the com­pa­nies ac­tively seek out lo­ca­tions in black and Latino neigh­bor­hoods — even when con­trol­ling for other fac­tors such as in­come. Heav­ily mi­nor­ity ar­eas in Colorado are al­most twice as likely to have a pay­day store than other ar­eas, CRL said.

“What they re­ally ex­pe­ri­ence is a cy­cle of loans that drain them of their wealth and big chunks of their pay­checks,” said Rose­mary Ly­tle, pres­i­dent of the NAACP Colorado, Mon­tana and Wy­oming con­fer­ence. “We’ve been aware for a long time that these in­flict par­tic­u­lar harm on com­mu­ni­ties of color.”

Ly­tle said a fa­vorite tar­get for pay­day lenders is di­verse mil­i­tary com­mu­ni­ties — such as out­side Fort Car­son in Colorado Springs — be­cause the com­pa­nies seek out bor­row­ers who have a re­li­able in­come but are still strug­gling to make ends meet.

“Many strug­gle to re­gain their fi­nan­cial foot­ing once they tran­si­tion from ac­tive mil­i­tary ser­vice,” said Leanne Wheeler, se­cond vice pres­i­dent for the United Vet­er­ans Com­mit­tee of Colorado. “The claim that these loans are help­ful to fam­i­lies is sim­ply false.”

There were 242 pay­day lenders in Colorado in 2015, ac­cord­ing to the at­tor­ney gen­eral’s de­ferred de­posit/pay­day lenders an­nual re­port.

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