Allowing lenders to bypass consumer protections in Colorado is a clear "No"

In 2018, 77% of Colorado voters voted yes on Proposition 111 to cap payday loan APRs at 36%. Unfortunately, a proposed federal rule would allow lenders to bypass our protections and charge triple-digit rates again. This is a bad idea and a coalition of organizations, businesses, and state legislators agree.   

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Danny Katz
State Director

Author: Danny Katz

State Director

(303) 573-7474 ext. 303

Started on staff: 2001
B.A., University of Virginia

Danny directs the operations of CoPIRG and is a leading voice in Denver and across the state to improve transit, stop identity theft, increase consumer protections, and get big money out of our elections. Danny has spearheaded efforts to electrify Colorado’s transportation systems, and co-authored a groundbreaking report on the state’s transit, walking and biking needs over the next 25 years. Danny also serves on the Colorado Department of Transportation's Efficiency and Accountability Committee and Transit and Rail Advisory Committee, and is a founding member of the Financial Equity Coalition, a collection of public, private, and nonprofit organizations committed to bringing financial security to communities throughout Colorado. He resides in Denver with his family, where he enjoys biking and skiing, the neighborhood food scene and raising chickens.

You may not have heard of the Office of the Comptroller of the Currency but this federal agency is proposing a rule that would allow banks to ignore the will of Coloradans and bypass our state consumer protections via a "rent-a-bank" scheme that would allow predatory, triple-digit APR loans again in Colorado. 

With comments on this bad rule due today, I'm happy to announce that a broad coalition or organizations, along with support from consumer champions at the legislature, is pushing back.  

In 2018, CoPIRG worked with a diverse coalition to close a loophole in our consumer protection statutes that allowed predatory lenders to charge fees and interest on payday loans that added up to triple-digit APRs. A payday loan is a loan where the borrower gives the lender access to their bank accounts so the charges can be taken whether the borrower has the ability to pay or not. Payday lending leads to a cycle of debt and Colordans said no in a resounding fashion, approving a 36% rate cap with 77% of the vote. The protections went into effect in Februrary of 2019. 

While payday loans are $500 or less, Colorado already has restrictions on the interest and APR that can be charged to larger loans. As the loan amount gets bigger, the allowable APRs get smaller. 

However, if the OCC proposed rule goes into effect, predatory lenders would be allowed to bypass our consumer protections in Colorado exceeding the 36% cap not just for payday loans but larger ones too. 

In order to stop this rule, we organized and submitted a letter signed by over two dozen organizations and businesses and nineteen consumer champions at the Colorado legislature. I think the letter gives some good details on the OCC rule so I pasted it below. You can also find an analysis of the rule from our friends at Center for Responsible Lending. 

We worked hard to stop the kind of predatory lending that leads people into a cycle of debt. We're not going to stop now.  

  

Letter to the OCC regarding proposed changes to lender rules

September 3rd, 2020

Office of the Comptroller of the Currency (OCC)

Comments regarding Docket ID OCC–2020–0026

Dear Acting Director of the OCC Brian Brooks,

We, the undersigned, are writing to indicate our opposition to the Office of the Comptroller of the Currency’s (OCC) proposed rule that would allow national banks to partner with non-bank lenders to make consumer loans at interest rates above Colorado’s limits.

In November, 2018, 77% of Colorado voters approved Proposition 111, which placed a 36% APR cap on payday loans. It passed in every single county but two. In addition, Colorado also limits the APR on two-year, $1,000 loans at 36%. Coloradans are clear - predatory lending products have no business in Colorado. 

Unfortunately, your proposed rule is a type of loan laundering that would enable non-bank lenders to circumvent our state laws and make consumer loans that exceed our state’s limits.  

Here’s how this proposal undermines Colorado law. A non-bank lender, which would normally have to abide by Colorado’s limits if they were making the loan, would be allowed to identify Colorado customers and get loan applications filled out and then send the applications to a national bank. That bank would then be allowed to send the consumer the money for the loan but quickly sell the loan back to the non-bank lender for a fee and the non-bank lender would then administer the loan and collect the fees and interest. By “renting the bank” in this way, the non-bank lender would not have to follow our state rate cap rules and could charge APR’s of 100% or more.    

This is a “rent-a-bank” proposal - the non-bank lender is essentially paying the out-of-state bank to rent its charter. The lender uses this arrangement to buy the ability to ignore the interest rate caps of the states like Colorado in which they want to operate.

We would oppose this proposal during good economic times. But it is a particularly bad idea during the COVID pandemic when so many of our neighbors and loved ones are struggling economically. Right now, high-cost predatory lending is more dangerous than ever. People need solid, responsible resources that will help get them through.

This rule would not provide good credit options to underserved communities. It will open the door to high-cost debt traps that drain wealth rather than build it - the exact kind of predatory products Coloradans rejected when they approved our 36% payday APR caps by a wide margin. 

We agree with you that action is needed during these extremely difficult times when so many Coloradans are in danger of going hungry, losing their homes, and closing their small businesses. We call on you to focus your attention on proven financial empowerment strategies like expanded access to safe and affordable banking, increased access to safe, affordable credit based on the borrower’s ability to repay, free individual financial coaching, community wealth-building strategies, and strong consumer protections. 

The OCC should build upon the consumer protections that states like Colorado have put into place not widen loopholes that bring back predatory lending products our state has roundly rejected. 

Please table plans to gut the so-called “true lender” doctrine, which is a longstanding anti-evasion provision critical to enforcing state interest rate limits against high-cost predatory lenders. 

Sincerely,

Colorado Organizations and Businesses

Danny Katz, Colorado Public Interest Research Group (CoPIRG)

Scott Wasserman, The Bell Policy Center

Leanne D Wheeler, Veterans of Foreign Wars Post 1

Rosemary Lytle, NAACP Colorado Montana Wyoming State Area Conference

Carmen Medrano, United for a New Economy

Simone Renee, Royal Executive Partnerships

Barbara Freeman, MANAUS - LaMedichi

Josh Downey, Denver Area Labor Federation, AFL-CIO

Morgan Royal, New Era Colorado

Lizeth Chacon, Colorado People's Alliance (COPA)

Maria Gonzalez, Adelante Community Development 

T. A. Taylor-Hunt, National Association of Consumer Advocates Colorado

Dennis Dougherty, Colorado AFL-CIO

Karen Moldovan, Good Business Colorado

Mike Kromrey, Together Colorado

Kyra deGruy Kennedy, Young Invincibles

Lauren Martens, SEIU Colorado 

Carlos Valverde, Colorado Working Families Party

Jice Johnson, Black Business Initiative, PBC

Julie Reiskin, Colorado Cross-Disability Coalition

Jordan Bailey, Philanthropiece 

Tiffani Lennon, Colorado Center on Law and Policy

Peter Severson, Lutheran Advocacy Ministry-Colorado

Robert Brocker, Colorado Senior Lobby 

Jeff Kinsey, The Logos Group

Magenta Freeman, DigiMarkPM

 

Colorado General Assembly Members

Steve Fenberg, State Senator and Majority Leader 

Dominick Moreno, State Senator

Faith Winter, State Senator 

Julie Gonzales, State Senator

Brittany Pettersen, State Senator

Tammy Story, State Senator

 

Dominique Jackson, State Representative

Mike Weissman, State Representative

Adrienne Benavidez, State Representative 

Janet Buckner, State Representative 

Yadira Caraveo, State Representative

Emily Sirota, State Representative

Kerry Tipper, State Representative

Jonathan Singer, State Representative

Chris Kennedy, State Representative

Serena Gonzales-Gutierrez, State Representative

Brianna Titone, State Representative

Daneya Esgar, State Representative

Steven Woodrow, State Representative

Danny Katz
State Director

Author: Danny Katz

State Director

(303) 573-7474 ext. 303

Started on staff: 2001
B.A., University of Virginia

Danny directs the operations of CoPIRG and is a leading voice in Denver and across the state to improve transit, stop identity theft, increase consumer protections, and get big money out of our elections. Danny has spearheaded efforts to electrify Colorado’s transportation systems, and co-authored a groundbreaking report on the state’s transit, walking and biking needs over the next 25 years. Danny also serves on the Colorado Department of Transportation's Efficiency and Accountability Committee and Transit and Rail Advisory Committee, and is a founding member of the Financial Equity Coalition, a collection of public, private, and nonprofit organizations committed to bringing financial security to communities throughout Colorado. He resides in Denver with his family, where he enjoys biking and skiing, the neighborhood food scene and raising chickens.