DENVER – Colorado Attorney General John W. Suthers today issued several reports on the state’s sub-prime lending activity in 2006. The reports include only lenders supervised by the Attorney General’s Office, and do not include most mortgages. However, they do show a significant increase in high-interest lending, as well as debt dependency.
“These numbers are very disconcerting,” commented Attorney General Suthers. “More people are borrowing more money at high rates than ever before. 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 that plagues so many.”
Sub-prime lenders that make or take assignment of supervised loans – defined as consumer loans with an annual percentage rate (APR) higher than 12 percent – must be licensed under the Uniform Consumer Credit Code (UCCC) and report their lending activity to the Attorney General on an annual basis. The three reports released today detail 2006 trends in deferred deposit – or payday – lenders, supervised lenders (finance companies and junior-lien mortgage lenders), and small installment lenders.
The Attorney General’s Office enforces the Colorado Uniform Consumer Credit Code – Colorado’s consumer lending law. Individual lender reports are compiled into composite reports, based on the type of loans made.
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. In 2006:
- The number of licensed payday lenders increased 17 percent.
- Payday lenders made over $632 million dollars in payday loans to almost 290,000 Colorado consumers. This represents a 28 percent increase in loan volume from 2005 and a 117 percent increase from 2003.
- The average payday loan amount was $351, to be repaid in 18.5 days, with an average APR of 329 percent. The maximum annual percentage rate on payday loans is approximately 392 percent.
- Although 14.2 percent of payday loans defaulted, only 4.2 percent of payday loans were not recoverable through collection activities.
- Nearly one-in-six borrowers were in debt for at least 6 months of the year, with 13 or more payday loans from the same lender.
Small Installment Loans
Based on a 2004 law, this is the second full reporting year for lenders making small installment loans. Small installment loans are $1,000 or less with loan terms of between 90 days and twelve months. In 2006:
- Twenty-one licensed small installment lenders loaned almost $15 million to 15,354 Colorado consumers. This represents an increase in loan volume of 59 percent over 2005.
- The average small installment loan was for $388, up from $329 reported in 2005 (18.3 percent increase).
- The average loan is written for 6½ months. However, almost three of every four loans are refinanced by the same lender after 3 months.
- Average annual percentage rates varied from 72 to 162 percent, depending on the loan amount and loan term.
Traditional Supervised Loans
The supervised lender report reflects loans made by finance companies, insurance premium finance companies, and certain mortgage lenders that make junior lien loans with an APR over 12 percent. Oftentimes, these loans are for consumer household products. In 2006:
- The number of licensed supervised lenders increased approximately nine percent, to 1,750.
- Supervised lenders made over $2.2 billion dollars in loans to Colorado consumers, a 17.6 percent increase from 2005.
- The average annual percentage rate for all supervised loans, both open-end and closed-end, was approximately 14.9 percent.
- The volume of closed-end real estate secured loans made by licensed supervised lenders more than doubled, to over $1 billion dollars. At the same time, the volume of open-end real estate secured loans (home equity lines of credit) decreased by 44 percent.
- The percentage of foreclosures filed on supervised loans – usually by banks or other lenders; not necessarily by the supervised lenders – increased by almost 80 percent.
The Consumer Credit Unit of the Attorney General’s Office licenses supervised lenders making sub-prime loans, conducts compliance examinations of these lenders on a periodic basis, and investigates complaints of unlawful activity. Lenders that make prime rateloans – banks, credit unions, other depository institutions chartered by state and federal banking officials, creditors that make indirect loans such as automobile dealers (retail installment sales), and mortgage companies that make first mortgage residential and refinance loans – are exempt from licensing and do not report data.
The composite reports for 2006 and prior years are available at: www.ago.state.co.us/UCCC/AnnualReports.cfm.