DENVER– On Tuesday afternoon, Colorado Springs Republican Rep. Bob Gardner set off a firestorm on the House floor and in the Twittersphere when in the last hours of the 2011 legislative session he amended the annual rules bill to strip out regulations passed last year on payday lending. It was a surprise move sure to generate rancor and just the latest battle in the ongoing war over payday lending in the state.

Gardner said he was acting to redress what payday supporters see as an overreach by the attorney general’s office last summer in interpreting legislation regulating the short-term loan industry .

“The clear intention… last year was that origination fees could be retained by the lender. Then a rule was enacted to prohibited that,” Gardner said. “The amendment says that that rule will not be extended. That is the reason that I am offering this amendment.”

Corrupting the process

House Democrats rose against the amendment as an attack on the legislative process. Some said the move could engender constitutional changes. Most said it was simply wrong to jeopardize hundreds of state rules governing the economy just to do the bidding of the payday loan industry.

“This is a corruption of the process,” said Boulder Democrat Claire Levy. “I have come down here many times to defend the processes that we have in the Colorado General Assembly– that when we bring forward a rule review bill, it is a rule review bill, and we don’t worry about booby traps or little secrets hidden in there, [because] we know it has gone through the process.

“Members, this is highjacking the rule bill. It corrupts the process. We need a ‘no’ on this.”

Levy said Gardner, with House Speaker McNulty’s blessing, had opened a new chapter in legislative gamesmanship that would now be used whenever legislators don’t get their way through the normal process.

A Ferrandino filibuster

Denver Democrat Mark Ferrandino, who sponsored the payday regulation legislation last year, filibustered after Gardner introduced the amendment. He stopped talking after 45 minutes.

“I decided I needed to let some other people’s bills pass,” Ferrandino told the Colorado Independent. He said he expected the Senate to strip out Gardner’s amendment Wednesday, which would force House members to decide whether or not to kill the bill.

“This would have a huge impact on Colorado services,” Ferrandino said. “Roughly $85 million to businesses… So, if they want to play this way, by raising interest rates on consumers, then they are going to be seriously harming the state of Colorado.”

The bill, SB 78, extends hundreds of rules that govern all kinds of business in the state.

Playing chicken

McNulty, R-Highlands Ranch, said he planned on sticking to his guns even if it meant killing the bill and forcing the state to fund a special session of the legislature to wrangle over the issue and eventually pass some version of the rule bill.

Although Democratic supporters of payday lending Ed Casso of Commerce City and Sue Schafer of Wheat Ridge both initially supported the amendment, they reversed their decision when Ferrandino called for a vote on an amendment that would remove Gardner’s amendment.

The Republican one-seat majority passed the bill, adding fuel to the fires that have been raging between state Democrats and Republicans this session as they have wrestled with the understandably charged task of congressional redistricting, work that appears finally to have crashed on the rocks of partisanship this week and that will now be decided in the courts or in a special legislative session.

Payday money

Payday lenders shelled out $90,000 since the end of last year’s session to lobby lawmakers here.

Corrine Fowler, a consumer rights advocate with the Colorado Progressive Coalition who worked on lat year’s payday legislation, said that, in addition to spending $93,000 since last May in lobbying, the payday industry gave $59,000 in campaign contributions to primarily Republican candidates.

The lobbying effort worked to at least get a bill introduced this session. Boulder Democrat Rollie Heath introduced HB 1290, which aimed to rollback regulations on loan origination fees. Heath’s bill failed to make it through the Senate. Opponents said payday lenders would tailor loan products to encourage borrowers to take out loans to pay loans, paying origination fees again and again.

One long-time Republican lobbyist not associated with the payday industry told the Colorado Independent that this year political gamesmanship has reached new highs.

“Somebody has been studying the rules,” he said.

[Image: Speaker Frank McNulty ]

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DENVER– The payday lending industry isn’t giving up on this legislative session in Colorado. Lawmakers who have failed at several attempts to roll back regulations passed last session limiting high payday interest rates and fees are now reportedly planning to attach to a bureaucratic rule-making bill an amendment that would thin the payday regulations. The legislative session ends at midnight tomorrow.

The bill, Senate Bill 78, is this year’s version of an annual bill that extends all the rules and regulations passed by the legislature. It’s a fairly formal exercise but the bill also includes a list of rules and regulations the legislature chooses not to extend. Rep. Bob Gardner, R-Colorado Springs, is leading the charge for the payday industry, introducing the amendment that would add the payday regulation laws passed last year to the list.

It’s a bold– some would say brazen– strategic move, given that payday industry arguments have been voted down time and again and in light of the fact that there is so little time to debate the issue. Indeed, the point seems to be to avoid debate. House Bill 1290, introduced by Republicans earlier in the session and voted down, also attempted to roll back the origination fee regulations.

Rep. Mark Ferrandino, D-Denver, a sponsor of the payday regulations that passed last year, told the Colorado Independent he wasn’t sure he would have the votes to scotch Gardner’s amendment. He said placing the controversial payday legislation as a rider on the must-pass rule-making bill was dangerous policy.

If SB 78 is not passed, everything from hunting laws to marijuana legislation would fail to be enacted for the year.

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“Despite the desperate and aggressive efforts of payday lending industry lobbyists, progressive advocates engaged the community for months to ensure that our senators understood the implications of HB 1290,” said Corrine Fowler from the Colorado Progressive Coalition. “We thank each and every member of the General Assembly who listened to their constituents and stood up against the industry lobbyists and for this important consumer protection measure.”

Heath contended his bill embodied the intent of an amendment he negotiated last year, which he said was subsequently misinterpreted by the attorney general’s office. The Democratically controlled Senate Local Government Committee said whether Heath’s intent was misinterpreted or not they had no interest in increasing the fees on a class of people already suffering from financial strain.

The bill, which sailed through the House, would have removed a provision currently in place that allows borrowers to receive a prorated refund of fees paid when purchasing a six-month loan. Currently, borrowers who pay off a $300 loan in 30 days will pay $21.25, which amounts to an annual percentage rate (APR) of 86 percent. The new legislation would have increased the fee to $71.25 on a 30-day loan, or an APR of 289 percent. If a borrower holds a loan for 180 days under either the proposed or current law, they will pay $240 in fees and interest (162 percent APR) for the loan.

Heath said that destroying the industry was not his intent, adding that the industry is a needed resource for people. He said he simply wasn’t buying the argument that people were going to go to churches and family for loans as opposed to payday lenders. “They simply don’t want to,” Heath said.

A number of groups involved in the discussions last year said the bill as it has been implemented is what they had agreed upon.

“The two week, triple digit interest rate payday loan that traps so many borrowers in debt is gone from Colorado, and today we made sure these protections remain,” said Rich Jones of The Bell Policy Center.

Heath said his negotiations last year with payday lenders resulted in a deal that allowed lenders to keep a stipulated origination fee that he said was fair. Payday loan detractors however, said the Heath bill would have actually increased the APR on those wanting to pay a loan back in two weeks.

“I would not have negotiated something that made it worse,” Heath said.  Heath explained that he expected that the attorney general would eventually overturn a ruling on the statutory language he created.

The bill is dead for this year.

State Rep. Larry Liston

Ferrandino today said the HB 1290 fundamentally alters the bill he sponsored by striking the term “finance charge” from statute and putting in its place the term “non-refundable origination fee.”

“It wasn’t supposed to be an origination fee. This was a charge that helps you finance the loan,” Ferrandino said. “With the change of the refund-ability and the change in the term, what we are doing is raising the interest rates on people if they want to pay it off before the six-month period.”

The bill, if passed into law, would remove a provision currently in place that allows borrowers to receive a prorated refund of fees paid when purchasing a six-month loan. Currently, borrowers who pay off a $300 loan in 30 days will pay $21.25, which amounts to an annual percentage rate (APR) of 86 percent. The new legislation ups the fee to $71.25 on a 30-day loan, or an APR of 289 percent. If a borrowers hold a loan for 180 days under either the proposed or current law, they will pay $240 in fees and interest (162 percent APR) for the loan.

Ferrandino argued that by making fees nonrefundable the law will create a disincentive for people to pay off their debt early and creates an incentive for payday lenders to develop loan products to trap individuals in a cycle of debt — a cycle the current law looks to eliminate.

“[With this new legislation] [w]e are allowing people … to churn the loan and give incentives that sound good to borrowers to be able to pay off their loan early, but in the end actually increases interest rates, increases loans, or will they will pay by paying off a loan by taking out another loan,” Ferrendino said.

Liston said last year’s bill narrowly passed out of the House 33-32 and that Senate sponsor Rollie Heath, D-Boulder, signed on this year’s bill because he wanted it done right.

“It was not done right last year because of the coercion and everything else that was done wrong in a hastened manner,” Liston said. “What has occurred as a result of the House Bill 1351, make no mistake about it, is that when 1351 was implemented it proceeded to put 140 stores out of business. [Lenders] will tell you that.”

Andy Kerr, D-Lakewood, said the statistics do not back up claims that cash advance lenders went out of business due specifically to  HB 1351.

He said that while the argument seemed compelling, statistics show the number of payday loan operations have been on the decline since 2007.

“Actually, in 2009 over a hundred of these stores closed down long before House Bill 1351 was passed and became law last year,” Kerr said.

Liston insists that the change in legislation was the driving factor for business closures and added: “This bill [will allow this industry] to stay in business, provide decent jobs, and provide a legitimate, fair, decent service for those consumers who wish to exercise this option.”

Ferrandino disagreed that the bill was fair to consumers.

“In these difficult times I don’t think we should be passing a law like this that increases fees on hard-working families,” Ferrandino said.

The bill passed easily in the House on a vote of 36-27, with two members excused.

The battle over payday loan fees will strain partisan loyalties at the Legislature again this year as new legislation was introduced Friday in the House. While former payday loan bill sponsor Rep. Mark Ferrandino, D-Denver, said the new legislation would roll back last year’s improvements, Senate sponsor of this year’s bill Sen. Rollie Heath, D-Boulder, said the new bill does exactly what he meant to do last year.

“It is doing what I thought we had done a year ago,” Heath told the Colorado Independent. Heath, who says he remains interested in creating a fair marketplace for payday lenders and customers, said “the Attorney General’s office misinterpreted what I thought I had negotiated.”

Ferrendino wholeheartedly disagreed with the move made by Heath to strip what he said was the heart of his bill.

“[The new legislation] basically guts the intent of the bill. One of the main reasons that we [made origination fees refundable] is that it disincentivizes the lender to to churn the loan,” Ferrandino said.

Payday legislation passed last year allowed lenders to charge up to $75 for an origination fee. The fee schedule set up in the legislation allows lenders to charge $20 for every $100 up to a $300 ceiling. After $300, it allows lenders to charge 7.5 percent on every hundred dollars up to $500. Borrowers who paid back the loan before thirty days receive a prorated refund of their origination fee. Borrowers who do not pay back the loan after 30 days begin to incur a $7.50 per hundred dollar maintenance fee per month that is capped at $30 over a possible 6-month term. In addition, they are charged a 45 percent annual percentage rate (APR).

Heath said he never meant for the origination fee to be refundable during his negotiations with lenders and reform advocates. He said the bill would fix that problem.

Confusion surfaced on the legislative intent of the bill during rule making last year, when it was finally determined by Laura Udis, administrator of the Uniform Consumer Credit Code at the Attorney General’s office, that the origination fees could be refunded.

Still, she said, if there was any question to her decision, the legislative remedy would be to amend the language this year. Heath plans to do just that.

Ferrandino, however, said whether Heath was clear or not on the agreement, the Attorney General’s office had been correct in its interpretation. He said then-Gov. Bill Ritter’s office was clear in its letter to the Attorney General’s office that the origination fee was refundable.

“To make [origination fees] non-refundable leads to a conclusion that is basically absurd as to what would happen with interest rates. It leads to interest rates going up versus down. That was never the intent of the bill,” Ferrandino said. “I was clear in my intent. The governor was clear in his.”

A chart, provided by Coloradans for Payday Lending Reform, shows the cost of a $300 loan held for 30 days would increase from $21.75 under current law to $71.25 under the new legislation. When figured in terms of APR the loan jumps from 86 percent to 289 percent.

Ferrandino and others fear that allowing lenders to keep the origination fee regardless of how soon a loan is paid back will cause them to develop loan products that would lead to individuals returning time and again for loans.

Corrine Fowler, Economic Justice director for the Colorado Progressive Coalition, said many legislators were considering the proposal because they thought there was a cool-off period. However, she said that wasn’t the case. Fowler said a 30-day waiting period is required between the dates on which the loans are made only if the same lender makes a subsequent loan to a consumer while a prior loan is outstanding or unpaid.

Past payday lending laws required individuals to pay back loans within a single pay period, which caused many borrowers to enter into a cycle of debt as they would acquire a new loan to pay back the one they had already taken.

Despite the potential risks to those in financial dire straits, many legislators at the time of the initial legislation’s passage said lenders were providing needed credit to those who were unable to get it anywhere else.

Ferrandino said the bill that passed last year was a very delicately devised compromise between the House and the Senate, and payday lenders are trying to “blow-up that compromise.”

Supporters of payday reform said  they don’t have funds this year to combat attempts to amend the legislation. However, they said the payday industry brought payday lobbyists on early after last year’s session and provided funds for candidate’s elections.

Fowler said that payday lenders had spent $93,000 since the end of last year’s legislative session in lobbying alone and had given $59,000 in campaign contributions to primarily Republican-oriented war chests. She said that seemed to contradict the image that the industry was struggling.

ACE Cash Express, headquartered in Irving, TX, contributed $26,000 to both the Republican Senate Majority Fund, LLC and Coloradans for a Better Future (CBF), a 527 group registered under Andy Nickel who also was the registered agent of Colorado Citizens for Accountable Government (CCAG). Last year CBF received $50,000 from the Senate Majority Fund, LLC.

The majority of CBF’s money was used for two advertisement expenditures to Strategic Media Placement LLC.

As the Colorado Independent reported, CCAG sent out mailers accusing Democratic House Rep. John Soper of wanting to release sex offenders from prison and implied that Soper would turn them loose in the district’s school yards. Soper roundly denied the accusation by listing off a series of anti-criminal legislation he had supported.

Payday reform advocates said they are targeting the Senate where they feel they have the best chance to stop the legislation from going through.

Sen. Linda Newell, D-Littleton, who voted against last year’s reforms, said she had not seen the legislation yet, but she said she may be amenable to changes that would ensure that the industry survives in the state. Newell voted in favor of Heath’s amendment to the bill last year.

“I understand that it is being negotiated, but I was supportive of the last one. My personal experience with being in poverty before and needing those kinds of services before is that I just don’t want all of those to dry up, but I do understand the compromise,” Newell said.

The bill is being co-sponsored in the House by Rep. Larry Liston, R-Colorado Springs, and Jim Riesberg, D-Greeley, where it will likely pass.

That was the case yesterday in Loveland, according to the Reporter Herald, when the attorney general candidates squared off. Democratic challenger Stan Garnett accused Republican incumbent John Suthers of abusing the public trust by filing briefs in other states in opposition to health care reform.

“This is a great example of John Suthers being the attorney general for the tea party,” Garnett said.

Garnett also attacked Suthers for not being a strong enough advocate for consumers and for taking money from the payday loan industry.

Suthers countered by saying Garnet takes money from attorneys. “It’s business versus trial lawyers, and you guys can determine which makes you more uncomfortable,” Suthers said.

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Payday lenders will now be forced to refund so-called origination or acquisition fees up to $75 when borrowers repay loans.

“I feel so listened to right now; I feel ecstatic,” said Corrine Fowler, Economic Justice Director for the Colorado Progressive Coalition, which helped draft House Bill 1351 with Denver Democratic state Rep. Mark Ferrandino last session. “I think Laura Udis should be thanked for her fairness and for listening and adhering to the legislative intent and to the bill’s sponsors.”

The bill’s sponsors were concerned that the proposed rules written in July by Udis provided a loophole in effect that would move the industry to craft loan products and strategies that would steer consumers to take out new loans, by for example lowering interest rates in order to collect repeat origination fees.

Even before he introduced the bill in March, Ferrandino knew the battle would be waged in the Senate, where lawmakers have in the past successfully plead the case for non-regulation of the industry. Ferrandino is now cautiously optimistic that the bill that emerged from the Senate Friday remains “good step in the right direction.”

“The bill’s obviously weaker than the original version, but I think it gets us to where I want to be. It is a much more complicated bill now, so the question is Will the industry find loopholes within the law? I think the intent of the bill is clear, but do they find loopholes?

“I think the way the Senate looked at it, and I was part of that discussion, was really to allow the consumer the power to decide how long the loan would be and make sure they don’t get caught inside the cycle of debt. We’ll see by next year if it doesn’t work out as intended.”

Ferrandino has argued since he introduced the controversial bill months ago that the payday loan industry makes its profits by sinking its customers into escalating debt. What has been a good business model for the industry has been bad for its customers, he has said. The short-term credit on offer has been “cheese for a trap” that produces windfall profits on the backs of people often struggling to make it day to day.

Republicans and three Democrats, including Sens. Linda Newell, D-Littleton, and Lois Tochtrop, D-Thornton, fought hard against the original bill, which the industry estimated would have shuttered 70 percent of payday lending operations in the state, which would have cost at least hundreds of jobs.

Sponsored by Sen. Chris Rommer, D-Denver, that version was amended Thursday by Sen. Rollie Heath, D-Boulder, cutting back on the strictest interest and fee regulations. Heath said he was unwilling to support a bill that killed the industry.The amendment passed, basically restructuring the industry into a six-month short term loan business that would allow borrowers to pay in installments.

The bill will cap payday loans at a 45 percent annual percentage rate (APR). Lenders can charge up to $75 installment fees on $500 maximum loan amounts; $20 fees for $100 loans and for first-time $300; and $7.50 for each subsequent $100. In addition, a maintenance fee of $7.50 on each $100 up to $30 can be charged by lenders each month that the loan remains outstanding. If a borrower fails to make any payment before the end of six months, they would pay $335 for a $500 loan. The loan can be rolled over once. As it is now, customers have to pay back their loans in two week or one-month intervals, quickly falling behind and wracking up fees and interest.

Negotiations with the industry according to Heath broke down over whether the monthly fee should be capped at $30 or $60. Payday lenders were asking for $60 at a minimum.

Tochtrop offered her own amendment in support of the industry. She said Heath’s amendment didn’t go far enough to protect payday lenders. “This is not the agreement,” she said, apparently referring to conversations made between the industry and lawmakers, opponents and supporters of the bill. “This is not going to keep payday lenders in business… If this bill passes, we are going to lose jobs. Nobody is putting a gun to the head of a consumer and making them take out a payday loan,” she said.

Most Republicans supported an industry-backed amendment brought forward by Tochtrop that would have restructured the industry to offer installment plans but also would have raised the cap on fees to $60. The amendment was defeated.

“If the industry can’t make it on these new numbers then they are doing something wrong,” Heath said after helping to pass the final vote.

Republicans fighting against the bill made fairly straight ideological arguments against government interference. They said it was not the place of government to regulate industry and effectively destroy it.

“What we are here today to decide is should this industry continue or shall it be put to sleep at the discretion of the Colorado legislature,” said Sen. Al White, R-Hayden.

White said that if lawmakers kill the payday loan industry through regulation, they would be delivering payday customers into the arms of organized crime and their sharks. He said the original version of the bill would have unintended grave consequences for payday customers.

“If we pass this bill, we are inviting organized crime into Colorado…. Organized crime makes these loans and you know how they collect? They send Willie the Enforcer out to your house, and Willie the Enforcer is not satisfied with a post-dated check.”

Heath thought White was being over the top. “This industry is regulated by the general assembly now. It just comes down to whether we [levy] a $30 or a $60 fee.”

Heath said that the industry had convinced him that it couldn’t survive without a fee but that he was not convinced the fee had to be $60.

“Allowing people a longer time to payback the loan will limit the cycle of debt,” Heath said.

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Banks including Wells Fargo and U.S. Bank are giving customers advances on their paychecks, typically for a fee of $10 per $100 borrowed, which translates to an annual percentage rate of 120 percent or higher, if repaid in under one month, according to a report by the Center for Responsible Lending.

“These products ensure that many borrowers will end up trapped in cycles of debt,” the report stated. “Unless the OCC and other bank regulators take action with regard to bank payday loans, these products will likely proliferate throughout the banking industry as financial institutions look for new sources of fee income.”

In recent years, several states have cracked down on payday lending, which typically operates out of simple storefronts. Fifteen states and the District of Columbia prohibit triple-digit interest rates on loans to consumers, according to the Center. But national banks are subject to regulation by the OCC, a part of the U.S. Treasury Department, and thus evade the limits. Consumer advocates are particularly concerned about Wells Fargo extending the reach of the products through its recent acquisition of Wachovia Bank.

Wells Fargo defended its loan product as a service to existing customers caught in an emergency, whose high cost is fully disclosed and complies with state and federal law.

“Wells Fargo does not consider our Direct Deposit Advance Service ‘exploitative’ nor is it a ‘payday loan,’” spokeswoman Richele Messick said in an email response to questions. “We reach out to customers at all stages of their usage of the service, reminding them of the expense of this product and encouraging them to seek less expensive alternatives.”

A U.S. Bank spokeswoman didn’t respond to requests for comment.

In 2000, the OCC stopped national banks from partnering with payday lenders, the Center said, calling on the agency to crack down on banks that are now directly making these kinds of loans. The OCC should also gather information on bank customers’ usage of these products and the impact on minority communities, which are disproportionately affected by payday lending, the report said.

The OCC doesn’t have a problem with national banks offering this type of loan, spokesman Dean DeBuck said.

“It’s not a payday loan. It’s available through banks and bank branches. It’s something you don’t get at a storefront,” DeBuck said. “This is a product that is offered to customers and they don’t have to use it. If it works for them, fine. If it’s not suitable for them, they can find something else.”

Here’s how the Wells Fargo and U.S. Bank products work, according to the Center. A banking customer who is signed up for direct deposit of at least $100 every 35 days may take an advance of $500 or half of the monthly direct deposit income, whichever is less. The funds are automatically repaid from the incoming direct deposit funds or existing balance.

A key problem is that the bank doesn’t evaluate the customer’s ability to repay the loan, as it would with a mortgage or consumer loan, Center spokeswoman Kathleen Day said.

“It’s not a good idea to lend money to someone that they can’t afford to repay,” Day said. From the customer’s perspective, “it would be better to take a $100 cash advance and pay it back over the year because you’d only be paying a double-digit APR.”

The OCC is primarily concerned with the safety and soundness of national banks, which actually improves when the banks make more money off their customers, noted David Min, associate director for financial markets policy at the Center for American Progress, a progressive think tank.

“The prudential regulators don’t necessary care as much if the consumers are being misled,” Min said. “They’re not always going to be a good consumer protection regulator.”

In a separate report, the Center said overdraft programs at national banks are among the worst in the industry and called on the OCC to curb abuses.

“Most national banks have adopted automated overdraft systems through which the bank routinely lends accountholders the money to cover any transaction — including those conducted with debit cards that customers often would prefer not to be covered,” the report said. “Banks charge a fixed fee averaging about $34 per incident and engage in a number of abusive practices that help to maximize overdraft fee revenue.”

The Center’s review of the 13 largest national banks, which hold about 80 percent of the $4 trillion deposits at U.S. national banks, found that the banks automatically enroll customers in the highest-cost overdraft program available, despite having lower-cost alternatives, and allow multiple overdraft fees to be charged in a single day.

In response to concerns about overdrafts on debit card use, the Federal Reserve approved new rules that take effect in July, requiring banks to opt in customers to any overdraft fees charged on ATM withdrawals or one-time debit card transactions. Bank of America earlier this month announced it will block any debit card transactions that would overdraw a customer’s account, to avoid charging an overdraft fee.

Katherine Reynolds Lewis is a Washington-area writer specializing in finance, work and family issues. Her work appears in the Fiscal Times, MSN.com, Washington Post Magazine and Parade.

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Flickr: Stallio

Borrowers sunk by the payday industry’s ballooning interest rates told tragic stories of their lives unraveling. They were supported in their testimony by more than a hundred Colorado community and religious organizations.

Payday lender employees testified that they feared losing their jobs should Denver Democratic Rep. Mark Ferrandino’s interest-rate capping legislation pass.

Lawmakers feared the law would restrict a credit source.

Business community representatives and trade organizations raised the specter of the rising unemployment numbers and revenue the state would lose should the payday loan industry pack up and ship out.

Maybe some of these businesses will leave Colorado, Ferrandino conceded. And maybe that’s OK. The predatory nature of the payday business-model warranted an industry contraction that has been too long in coming, he said.

Ferrandino’s bill would cap payday interest rates at 36 percent. They now stand at roughly 320 percent.

The proposal, which began the day as a ballot referendum but ended as a straight legislative bill, seeks to lift the exemption for the payday industry of the state’s usury laws, which cap most loans at 36 percent. That exemption was passed in 2000 by the General Assembly.

“All this bill tries to do is put those businesses back under the same restriction they were under prior to 2000– [back to] 36 percent interest rates,” Ferrandino said.

Rep. Bob Gardner, R-Colorado Springs, with the other Republicans on the committee, sympathized with the lenders. He said that although he has wrestled with the ethics of the high cost of the payday loans, he is swayed by business considerations.

“It seems at least from the stand point of payday lenders that this will be a significant reduction in their gross revenue and essentially puts them out of business.”

Gardner said his constituents include payday lenders and borrowers, who all see a need for the service.

Ferrandino said that, based on research from other states, new regulations would see a contraction in the business. He asked, though, whether the industry should be supported in its “current form.”

“What it is currently doing, when you see statistics and you see studies that show that someone who takes a payday loan is 26 percent more likely to file for bankruptcy, I would think that their product as it is offered right now does not provide credit to people, it provides debt.”

Ferrandino with the backing of the Colorado Attorney Generals Office, explained that many payday businesses skirt Colorado law, even as it exists today. He said the AG’s office found that 73 percent of the industry policies worked to get around mandated “cooling off” payment plans where borrowers with three payday loans are offered six payments at no interest. Lenders discourage borrowers from enrolling in the plans.

“You’ll never get a loan,” they say, Ferrandino told the hearing room. “We will not loan to you in the future.”

Laura Udis, first assistant attorney general in charge of the unit that administers the Colorado Credit Consumer Credit Code,  told the committee that the average payday borrower takes out eight loans over the course of a year and that half of all borrowers take out twelve or more loans from a single payday lender. They take out loans from other stores, she said, but the AG’s office doesn’t track that.

“State law allows one refinance,” Udis said. “Only one is allowed. However there is nothing that stops a borrower from coming in and getting cash from somewhere else, which happens with some frequency.”　

The Colorado Attorney General’s Office did not take a position on the bill.

Ron Ruckvam, president of Money Now and of the Colorado Financial Service Centers Association (COFISCA), said his family-owned five-store chain did not create deterrents for people to ask to enter the “cooling off” no-interest payment plans. He said the nature of short term relatively low-amount loans can not survive on typically low interest rates.

“The bill is trying to change our business model to 36 percent– which would amount to an unsustainable $1.36 [return] on a two-week $100 loan…. nobody survives that kind of a business model.”

Rockvam said the bill had one purpose: “To eliminate advance payment lending in Colorado.” He said he would have to close his stores should it pass.

“Use is on the rise. [Customers] are not running away from our stores. They are deciding that their alternatives are inferior to the service we provide.”

Rockvam said that more than 300,000 people used payday loan services last year.

Gardner asked what would stop Coloradans from using internet payday loan services unregulated by the state if payday lending ceased to be accessible here.

The attorney general’s representatives said that Colorado does have jurisdiction over anyone trying to lend in the state. Colorado prosecuted a Utah lender in 2005 and won a $2 million settlement.

The bill passed seven votes to four, a party-line vote.

“Partisan politics,” Ferrandino told the Colorado Independent. “One side is representing special interests, while the other is trying to give people access to real credit instead of debt. But I am pleased we were able to get it out of committee.”

Ruckvam said the industry would continue to fight. Ferrandino said he expected as much and that payday lobbyists were already turning out in force.

“Obviously, we are disappointed in the outcome,” Ruckvam told the Colorado Independent. “I think a lot of very good questions were raised and the committee seemed generally interested in getting to the facts. We will see if we can get enough of the facts out to the General Assembly to be victorious on the floor.”

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