In the waning days of the Colorado Legislature’s 2015 session, lawmakers hastened through a debate about a bill allowing short-term lenders to assess a high-interest finance charge on loans of relatively small amounts. Despite its harmful implications for low-income Coloradans, the measure passed both chambers of the Legislature and made its way to Gov. John Hickenlooper’s desk. Late last week, Hickenlooper vetoed the measure, and, in doing so, saved vulnerable borrowers from insurmountable debt.
For those who lack savings or access to affordable credit, high-interest lending – such as payday or consumer-credit loans – can be essential tools when emergencies arise. Utilizing these loans, though, comes at significant cost, and those who provide them make exorbitant profits from people who seek the funds. For loans of $1,000 or less, lenders can charge borrowers 36 percent interest; those ranging from $1,000-3,000 face a 21 percent interest cap, and loans of $3,000 or more are limited to a 15 percent finance charge. House Bill 1390 would have raised the ceiling at which the highest charges could be levied to $3,000, and bumped the middle range from $3,000 to $5,000. In doing so, the measure would have levied a far more burdensome interest rate on those borrowing relatively low amounts. With his veto, Hickenlooper helped stave off the resulting financial hardship for those borrowers.
Given that those lenders who proposed the measure provided no demonstrable need for the increased rates in order to continue making the loans, the massive finance charge increase was not in the state’s best interest. As Hickenlooper said in his veto letter, ensuring that those with less-than-stellar credit have access to capital is important, but increasing the cost of that capital is not to be taken lightly. “Prior to approving any increase in the allowable amount of interest charged, we believe it is necessary to more fully explore and substantiate the claim that a change in the law is necessary for these products to be accessible. Colorado’s consumers deserve this clarity as they will ultimately carry the expense that would result from this legislation,” Hickenlooper wrote.
HB 1390 failed to demonstrate that need, nor justify the resultant expense. Hickenlooper was right to veto it.