DENVER — A bill limiting the terms of payday loans was headed to the governor for his signature Tuesday after Democrats agreed to give consumers more control over how they repay such debts.
The House backed a new version of the bill by one vote. It changes short-term payday loans – with typical terms of just a week or two until the borrower's next payday – into six-month loans.
Lenders would still be able to charge a $75 origination fee as well as monthly fees up to $30 and up to 45 percent in interest, but consumers have more flexibility with repayment plans.
Republicans say the changes will keep some payday lenders in business, but they believe it will still force some lenders to close and layoff workers.
"The Senate made this marginally better. This might only put a third of the industry out of business," said Rep. Larry Liston, a Republican from Colorado Springs.
Rep. Mark Ferrandino, a Denver Democrat, said he has tried unsuccessfully for several years to put caps on payday lenders and finally succeeded. He said Gov. Bill Ritter has agreed to sign the bill.
"It's not as strong as I would have liked to see it, but it really deals with the cycles of debt. The question now is whether the industry will find a way to get around it. It really puts consumers in the driver's seat," Ferrandino said.
Currently, lenders are allowed to charge the equivalent of up to 300 percent annual interest on payday loans.
The bill passed by the Senate would require lenders to make loans for six months at a time instead, and to give borrowers the flexibility to repay earlier. Lenders would be able to charge a $75 origination fee in the first month followed by monthly fees of $7.50 per $100 borrowed – up to a maximum of $30 – and up to 45 percent annual interest. Under those terms, a borrower would pay $337.50 to borrow $500 if they waited until the end of six months to pay.
According to the attorney general's office, the average payday borrower in Colorado refinances the same loan five times before paying off the original amount. In 2009, the average borrower paid $475.73 in total finance charges to borrow $366.97.