Is 36 Percent Interest on a Loan High Enough?

Sometimes reporters ignore bills in the state legislature that look like they would surely die quickly in the hands of divided government. But here's a piece of right-wing legislation that surprisingly cleared Colorado's divided legislature last year, before a being vetoed by Gov. John Hickenlooper: a "predatory-lending" bill.

Similar legislation, introduced just last week, should be scrutinized by journalists, despite the end-of-session onslaught on top of the usual onslaught.

This year's predatory-lending bill (SB16-185) would allow for an increase in interest rates on subprime "personal loans," which are sold to people whose credit problems preclude them from obtaining loans with more favorable interest rates.

Such loans are convenient--and can actually help struggling families improve their credit ratings. But they're costly, with the potential to be devastating economically for low-income people.

Lenders are getting 36 percent on the first $1,000 in a personal loan, and 21 percent on such loans from $1,000 to $3,000. Yet the senate bill would set up a mechanism to jack up the rates even more. Last year's failed bill aimed to set the interest rate at 36 percent for all personal loans up to $3,000.

Personal loans average $6,000 in Colorado. They shouldn't be confused with pay-day loans, which typically carry an even higher interest rate and can be no more than $500, under state law. So these are completely different types of loans.

In vetoing the measure last year, Hickenlooper was "particularly struck" by the Colorado Attorney General's assessment that higher interest rates on personal loans would not make them more readily available to consumers.

This validates statements by the bill's opponents that lenders of personal loans are profitable and thriving--despite allegations by the bill's opponents last year that higher interest rates are needed to keep lenders from abandoning the business. And the number of personal loans sold last year is the highest since 2009, so the market is actually growing under the current regulatory structure, opponents say.

A number of groups have lined up against the predatory lending bill, including AARP Colorado, Bell Policy Center, Center for Responsible Lending, CLLARO, Colorado Catholic Conference, Colorado Center for Law and Policy, Colorado Council of Churches, Colorado Fiscal Institute, Gary Community Investments, Company, Interfaith Alliance of Colorado, One Colorado ProgressNow Colorado Small Business Majority.

A hearing on the bill is scheduled for today.

Given what happened last year, and the public's well-known demand to know what lawmakers are doing to help (or in this case hurt) working families, journalists should keep a close eye on this year's predatory-lending legislation.