Fewer loans made in 2008, but defaults increased

Credit was tight in Colorado in 2008 – fewer loans were made but defaults and delinquencies increased, and even the state’s payday consumer lenders saw less business.

Delinquencies on supervised loans increased 23 percent and the loan defaults doubled compared to the previous year, according to a report from Colorado Attorney General John Suthers.

“Although not unexpected, the increase in defaults is troubling,” Suthers said. “Consumers in financial distress could face repossessions, foreclosures and impaired credit records. More than ever, consumers need to communicate with creditors about their financial situations. Creditors also should consider reasonable work-out plans or loan modifications and engage in responsible lending practices.”

Overall loan volume also decreased 53 percent, due mostly to a 77 percent reduction in mortgage loans. Car loans decreased by 50 percent, the report said.

In addition, the report showed that the number of licensed supervised lenders decreased 40 percent, reflecting the decline in the number of mortgage companies due to lack of money and tighter credit standards. Several lenders became subsidiaries of national banks or federal savings associations, exempt by federal law from state licensing and regulation.

Suthers said the charge-offs or uncollectable payday loans decreased from 4.8 to 4.4 percent in 2008, and lenders made more than $566 million dollars in payday loans, an 11.4 percent decrease in amount lent and a 13.1 percent decrease in the number of loans.

Other findings:

  • The number of licensed payday lenders decreased by 1.3 percent to 610 licenses.
  • The number of Colorado residents obtaining loans increased by 1 percent to 303,462 people – but Suthers said that number was inflated because some people had more than one payday lender.
  • The average loan amount increased by $7 to $369, with a 317 percent average annual interest rate.
  • Twenty-five percent of payday loan consumers entered into one or more payment plans.
  • About three-fourths of payment plans were successful completely.
  • Nine companies made small installment loans – limited to $1,000 or less and due within 90 days to 12 months.
  • Loan amounts increased 29 percent with the average small-installment loan worth $589.
  • Lenders loaned $15.9 million in small-installment loans to 14,905 people, a 4 percent increase in loan volume and a 7 percent increase in consumers.
  • Average annual percentage rates ranged from 59 to 222.
  • Charge-offs increased from 8 percent to 9.7 percent.