Attorney General Laments Grown of Colorado Payday Loans
Payday advance lending continued its rapid growth in Colorado last year, jumping 28 percent to $632 million.Regular and online payday loans first topped the $500 million mark in 2005, when they grew 34 percent. The industry was as small as $36 million of loans in 1996.The loans are regulated by the office of Attorney General John Suthers, which compiled the numbers. At the same time Suthers announced the industry’s increasing fortunes, he warned Colorado consumers to stay away.”These numbers are very disconcerting,” Suthers said in a statement. “We must continue to educate Coloradans about the dangers of borrowing at exceptionally high interest rates and show our citizens how to avoid the cycle of debt.”Lyndsey Medsker, a spokeswoman for the cash advance payday loan industry trade group Community Financial Services Association of America, said “the reason they’re growing is that there’s a high demand for short-term credit.”The typical payday customer has a bill that’s due and not enough money to cover it, she said. “The options are bounce a check with those fees or use overdraft protection; not pay the bill and owe late fees; or take out a payday loan. If you look at the fees, . . . (payday advance loans) are less expensive than the other options.”The banking industry argues that only a minority of its customers incur its most onerous fees. An August study sponsored by the American Bankers Association found that 80 percent of consumers had not paid an overdraft fee in the prior 12 months.Of the 20 percent who had, about a third paid just one overdraft fee.Colorado law says payday loans can be as much as $500 for up to 40 days, with the balance due on the consumer’s next payday. The maximum finance charge allowed for a $500 loan is $75.Sara Allen, of Consumer Credit Counseling Service of Northern Colorado, said, “We see an awful lot of people with multiple payday loans.” The number of people streaming into their offices increased by 40 percent in 2006 compared with a year earlier.”I wish we could do a better job of requiring payday lenders to be very forthright in saying how this works and how much it costs. But . . . I wish we could do a better job training consumers to find other options. We’re trying.”