DENVER – A Senate committee on Tuesday advanced legislation similar to that vetoed by the governor last year that could result in higher finance charge limits on small loans.
As happened last year, the bill has brought some odd partners together, including progressive Rep. Jovan Melton, D-Aurora, and conservative Sen. Ray Scott, R-Grand Junction.
Progressive groups have been at odds with Melton over the bill, just as they were last year. The groups brought inflatable sharks to the Capitol, where they accused supporters of allowing “loan sharks” to thrive.
The bill passed the Senate Finance Committee on a 3-2 party-line vote, with Republicans supporting the bill and Democrats opposing it.
Unlike last year, the bill would not raise allowable small-loan amounts under existing interest rates. Instead, it would allow the attorney general’s office to examine those amounts and potentially raise limits, which have not been adjusted in 16 years.
Small loans are generally defined as between $1,000 and $5,000.
Critics, however, say the effort could result in interest rates for small loans jumping from 21 percent to 36 percent by changing the structure the rates are charged on.
“We don’t think there’s any need to impose this additional cost on borrowers,” said Rich Jones, director of policy and research for the Bell Policy Center, which has led much of the opposition to the bill.
The issue is that small-loan lenders are shrinking in Colorado, down to only one, Springleaf Finance, Inc. For many low-income families, a small loan is their best option, as larger banks won’t provide assistance.
Unlike payday loans, these supervised loans are fully underwritten and require a credit check to ensure borrowers can pay it back. About 60 percent of applications are denied.
“I’m running this for progressive reasons,” Melton said. “If we don’t do something about this now, then we’re going to lose that last company, which means the only option we’ll have left is payday lenders.
“I want to give people with lower income and people who don’t have the best credit some options.”
Gov. John Hickenlooper, in vetoing the bill last year, called for a longer stakeholder process to determine if the legislation is necessary.
Critics say the measure would empower predatory lenders to force low-income people into a cycle of debt.
“Because reasonable lending options are not made available in the low-income areas, minority communities must rely on the unreasonable options that are available to them,” said Cara Birnbaum, representing the Colorado Latino Leadership, Advocacy and Research Organization.
Republicans, however, argued that the free market would correct any injustice.
“In a market where I want more customers, I am going to try to offer a better deal ... than the person next to me and try to get that business,” said Sen. Owen Hill, R-Colorado Springs. “My business benefits if I get more business.”