Financial issues can be complicated. Often they are made purposefully complicated by those seeking to exploit them – a pattern we have seen time and time again from the predatory lending industry. Such lenders continue to push for policies and loopholes that allow them to take advantage of consumers.
Fortunately, here in Colorado we have a powerful group of consumer advocates pushing back and developing a model for other states to follow.
One recent example comes from the Bell Policy Center (Bell), Center for Responsible Lending (CRL), and Colorado Public Interest Research Foundation (CoPIRF), who have worked together to educate Colorado consumers about our financial protections and fight predatory lenders’ efforts to evade them.
To understand their impact, let’s start with a little history.
In 1980, the federal government loosened regulations on lending, allowing banks to use one state’s maximum interest rate when lending to residents of another state.
In practice, that means if Utah lets banks charge higher interest rates than Colorado allows, a bank in Utah could side-step Colorado’s limits by charging Utah rates to Colorado customers. By exploiting this loophole, the Utah bank could evade the strong consumer protections Colorado voters and legislators have put in place over the years.
Predatory lenders had a field day. They used “rent-a-bank” schemes to partner with banks in states that have higher interest rate limits and export those high-cost loans across the country. With the growth of the online lending industry, this loophole only became easier – and the problem, worse.
“People agree – lenders should not be able to evade our laws by ‘renting’ a bank in another state and importing that state’s interest rates. It’s our job to communicate what’s happening.”
Danny Katz, executive director of CoPIRF
This is where consumer advocates stepped in.
In Colorado, the Bell, CRL, and CoPIRF educated the public about the tools states have to stop lenders from side-stepping their interest rate caps. “Recognizing the complexity of this issue,” said Andrea Kuwik, the Bell’s Director of Policy & Research, “the Bell put together materials to help both lawmakers and regular Coloradans understand the problem.”
Ellen Harnick, Executive Vice President & Director of State Policy at CRL, noted that “CRL leaned into its deep understanding of the consumer lending market to provide advocates and policymakers with the data and context needed to evaluate the potential impacts.”
Together, they laid the groundwork for Gov. Polis to sign a law protecting Colorado’s caps, including for out-of-state lenders. “After the bill passed,” added Kuwik, “we continue to educate community members and organizations about what’s at stake and the importance of this legislation in maintaining our state’s hard-won progress in protecting Colorado consumers.”
They have also defended Colorado’s law against predatory lenders’ attempts to claw it back. To this day, the lending industry is throwing vast resources at efforts to evade Colorado’s law, even suing in federal court to prevent the law from taking effect.
Today, Colorado stands as a national leader in consumer protections.
As the first state in more than 40 years to protect interest rate caps in state statute, Colorado set a national standard for modernizing lending laws. And consumer advocates like the Bell, CRL, and CoPIRF have created a public education playbook that advocates nationwide are putting to work in their states.
“It’s critical that we raise the visibility of Colorado’s position as a leader in the consumer protection space and lift up those decision makers that champion consumers,” said Katz. “Not only to better defend what we win, but to inspire other states to act.”