Payday loan reforms get outflanked

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.