Colorado Democrats Fail To Understand Bill They Drafted, Blame Attorney General John Suthers

One of the reasons I am in favor of restraint in legislation and less government intervention is because our elected legislators, in particular, are constantly reminding us of how bad they are at doing the job we elected them to do.  Today’s example comes to us courtesy of the Colorado General Assembly. 

Earlier this year, the General Assembly passed and Governor Ritter signed into law House Bill 1351 (a/k/a House Bill 10-1351), which regulates and limits the interest and fees that can be charged for “payday loans.”  In general, a “payday loan” is a loan in which the lender takes a post-dated check as the sole security for a short-term loan in the amount of the check minus finance charges and fees.  See Colo. Rev. Stat. § 5-3.1-102(3).  

Since there is no collateral, and the borrower is almost by definition living on the financial edge, these loans carry a high level of risk to lenders, and lenders historically charged borrowers a correspondingly high amount of interest and fees.   House Bill 1351 sets six months as the minimum loan term, imposes a maximum interest rate, and prohibits lenders from charging a pre-payment penalty. 

The Denver Post reports that a “controversy over payday-lending regulations has escalated after the two Democratic lawmakers behind the industry overhaul said the Republican attorney general’s staff has favored lenders when it comes to fees.”  The controversy arises, according to two Democrat sponsors of the bill, from the question of whether “lenders should have to refund a portion of the loan-origination fee to borrowers who repay their debts early.” 

Unfortunately, the Denver Post did not bother to quote House Bill 1351 itself.  It did, however, find space to note more than once that Democrats have accused John Suthers of improperly accepting campaign donations from payday lenders while his staff drafted regulations implementing the bill. 

So who is right here?  Through the magic of the Internet, I found and now present to you the relevant language of House Bill 1351 (with emphasis paragraph breaks added): 

A lender may charge a finance charge for each deferred deposit loan or payday loan that may not exceed twenty percent of the first three hundred dollars loaned plus seven and one-half percent of any amount loaned in excess of three hundred dollars. Such charge shall be deemed fully earned as of the date of the transaction

The lender may also charge an interest rate of forty-five percent per annum for each deferred deposit loan or payday loan. If the loan is prepaid prior to the maturity of the loan term, the lender shall refund to the consumer a prorated portion of the annual percentage rate based upon the ratio of time left before maturity to the loan term. 

In addition, the lender may charge a monthly maintenance fee for each outstanding deferred deposit loan, not to exceed seven dollars and fifty cents per one hundred dollars loaned, up to thirty dollars per month. The monthly maintenance fee may be charged for each month the loan is outstanding thirty days after the date of the original loan transaction. 

The lender shall charge only those charges authorized in this Article in connection with a deferred deposit loan. 

There isn’t even much ambiguity, if any.  

There are three allowed charges: (1) a finance charge that is “fully earned as of the date of the transaction”; (2) a maximum interest rate, with a refund of a “prorated portion of the annual percentage rate” upon prepayment; and (3) a monthly maintenance fee.  Since the finance charge is “fully earned as of the date of the transaction” it was intended to be non-refundable.  This is confirmed by the fact that only a “prorated portion of the annual percentage rate” is declared to be refundable upon prepayment.  That is the only reasonable interpretation of the language drafted and passed by the General Assembly. 

It is the General Assembly’s job to draft legislation.  If the legislators failed to accomplish what they intended, that is not the fault of the Attorney General’s Office.  Its job is merely to give effect to the language drafted by others. 

Nevertheless, the Denver Post magically transforms a story that should be about Colorado Democrats either not understanding the clear, unambiguous language of a bill they drafted, or misinterpreting it for political purposes, into a  controversy about campaign contributions and implementing regulations.

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Published in: on August 31, 2010 at 12:17 pm  Leave a Comment  

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