Despite 2010 bill, payday loans continue

focus_paydayloansYour dog needs emergency surgery but you don’t have the cash. And your next payday isn’t for another couple of weeks.

One possible solution, if you want your pooch to thrive, is to apply for a payday loan to get quick cash.

You’ll come away with a healthy dog, but you’ll pay high interest rates as the trade-off.

The number of payday loans made in Colorado increased only slightly from 2011 to 2012, in figures released recently from the Colorado Attorney General’s Office. The Consumer Credit Unit of the Attorney General’s Office oversees subprime consumer lending activity, including payday loans.

Confined by strict rules from the Colorado General Assembly, companies offering the loans can provide no more than $500.

In exchange for the ability to obtain the money, the client will pay an interest rate of up to 45 percent, according to a state law that passed in 2010.

Before the law passed, payday loan companies charged a flat fee, which equated to around 390 percent, said Ron Rockvam, president of the Colorado Financial Service Centers Association, the statewide agency for payday loan providers.

A local company perspective

Conan McNab of Mister Money, 2406 E. Boulder St., said the number of people seeking payday loans from his Colorado Springs firm has increased in the past year.

“It’s a pretty steady business,” McNab said.

Payday loans are not just for low-income people, McNab said. He said his clients make from $1,000 a month on up to $8,000 a month.

“Sometimes there’s an emergency, a hospital bill or car repair, something pops up that you’re not prepared for,” he said.

McNab cited, as an example, a person taking out a $300 loan. Mister Money caps first-time customers at a $300 loan.

If the customer pays off the loan in six months, the total amount of payback is $513.04, which computes to the $300 principal plus $213.14 in interest.

The demand hasn’t dropped, even with the talk of the economy improving,” – Ron Rockvam, Colorado Financial Service Centers Association

The charges are prorated, so “the earlier they pay it back, the less they pay,” McNab said. If the money is needed only for a few days, the customers pay only around $5, he added.

“It’s a substantial decrease,” Rockvam said.

Yet, many people still apparently are willing to go that route for a short-term loan. In 2012, 440,865 people obtained payday loans, down from 444,333 the year prior. The amount borrowed went from $167 million in 2011 to $169.2 million the following year.

The average amount of a loan went from $376 in 2011 to $384 in 2012.

Also, the Attorney General’s Office outlined information obtained from 245 companies at 747 licensed locations in Colorado that made payday loans and other “unsupervised” loans, those loans that are made for furniture, cars and other items from companies that make their own loans.

Demand holds steady

Rockvam said the numbers didn’t surprise him.

“The demand hasn’t dropped, even with the talk of the economy improving,” Rockvam said. “People’s incomes haven’t increased.”

The Attorney General’s Office said there were 287 locations for payday lenders in the state as of 2012. However, that number has declined to around 200 currently, Rockvam said.

In Colorado Springs, there are 13 payday loan storefronts, a noticeable decrease from a high of 51 stores in 2007, Rockvam said.

“Another 10 stores closed last week,” in Colorado, Rockvam said. He attributed the decline directly to the 2010 law.

“The business model by the law passed in 2010 just does not allow for enough profitability,” Rockvam said. “A lot of stores are just holding out for their leases to expire.”

The 2010 law “slashed the income considerably. It was not designed to grow the industry, but to shrink it, to dissolve it,” Rockvam said.

For example, with a two-week, $500 loan at a fee of $75, the client would pay $575 prior to 2010, Rockvam said.

“That same $500 loan, if you were paying it back in two weeks, it generates $10.29, versus $75,” Rockvam said. “It’s a substantial decrease.”

If the $500 loan were paid back in six months, the cost would be higher, he added.

Figures from the Attorney General’s Office show there were 661 payday lenders in 2007.

“Now, more than two-thirds of the stores are gone,” Rockvam said.

“Apart from what it’s done to the people who work for the stores and the owners, it has served to eliminate access to this type of credit to a lot of consumers in a lot of markets.

“Where there had been payday lenders in cities like Montrose, La Junta, Lamar and Sterling, people there have no access to this type of credit.”

Instead, people are now turning to the Internet for payday loans. There, they find unlicensed companies not required to report their fees or charges to a state agency, Rockvam said.

“They’re getting the loans somewhere,” Rockvam said. “When they do an Internet loan, they are not dealing with a licensed provider.”

State v. loan provider

In 2011, the state of Colorado sued Internet loan provider Western Sky Financial, a company based in Eagle Butte, S.D., and Martin A. Webb, its owner and a member of the Cheyenne River Sioux Tribe.

Western Sky Financial suspended its operations Sept. 3 “as a result of unwarranted overreach by state regulators,” said its website.

“Regulators from … states lack the authority to regulate legal commerce engaged by members of the Cheyenne River Sioux Tribe on the Cheyenne River Indian Reservation,” the website said. In the past, Western Sky Financial has claimed that, because it operates on a reservation, it is subject to tribal, not state, laws and regulations.

The state Attorney General’s Office filed suit against Western Sky and Webb because the firm is not licensed in Colorado.

According to the lawsuit, filed in Denver District Court in January 2011, the company made more than 200 loans to Colorado consumers since at least March 2010, during which time it was not licensed with the state, according to a press release.

Western Sky loans ranged in value from $400 to $2,600, and terms ranged from seven to 36 months. The loans’ annual percentage rates ranged from 140 percent to 300 percent.

Under Colorado’s Uniform Consumer Credit Code, lenders making such loans must be licensed with the Attorney General’s Office.

The number of Western Sky loans made to customers in Colorado Springs was not released by the Attorney General’s Office because the matter remains in litigation, said its spokeswoman Carolyn Tyler.

Because Western Sky Financial made loans with interest rates higher than 12 percent, it must be licensed, the Attorney General’s Office said.

In orders filed in April and May this year, District Judge Michael A. Martinez ruled that the company and Webb were not entitled to tribal immunity.

Also, Judge Martinez ruled in favor of the state in reference to Western Sky giving refunds to customers and reimbursing the state’s attorney fees.

Similar lawsuits to Colorado’s against online lenders have been filed in the states of New York, Oregon, Minnesota and Maryland.