DENVER – Colorado Attorney General John W. Suthers today issued several reports on the state’s high-cost consumer lending activity in 2007. The reports include only lenders supervised by the Attorney General’s Office, and do not include data on most mortgages. They show the effect of payment plan requirements for some payday loans, continued high levels of high-interest payday and small installment lending, debt dependency, and significant decreases in mortgage-related credit.
“Financial literacy and responsible lending practices are more important than ever in this challenging economic environment,” commented Attorney General Suthers.” Although this new data seems to show there’s been some progress in making payday lending more consumer friendly, I am concerned that some lenders are restricting consumers’ access to the new tools we’ve made available, namely payment plans. In addition, the spike in bankruptcy filings and continued high debt levels for a number of consumers suggest that there still is much work to do to help wean Coloradans off debt.”
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 on an annual basis. The three reports released today include data for 1,776 licensed locations. The reports detail trends in deferred deposit loans (commonly called payday loans), traditional supervised loans (made by finance companies and junior-lien mortgage lenders), and small installment loans. Overall, the number of all supervised loans in 2007 was steady, declining by only 3.4 percent from 2006. However, the dollar amount of all supervised loans decreased 41 percent, mostly due to the decrease in mortgage lending.
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, usually every two weeks. For a 14-day loan of $500 at the maximum $75 finance charge, the annual percentage rate is 391 percent; for a 14-day loan of $300 at the maximum $60 finance charge, the APR is 521 percent. In 2007:
- The number of licensed payday lenders decreased 7 percent to 618.
- Payday lenders made over $639 million dollars in payday loans, a slight increase in loan volume from 2006.
- Lenders reported making loans to 300,000 Colorado residents although this number is overstated by consumers that borrow from more than one payday lender.
- The average payday loan amount increased by $11 to $362 with an average APR of 318 percent.
- The charge-off rate for unrecoverable payday loans was 4.8 percent, up one-half of a percent from 2006.
- One-third of all borrowers had 7 or more payday loans per year from the same lender and 11 percent were in debt for at least 6 months of the year, with 13 or more payday loans from the same lender.
- A state law effective July 1, 2007 required lenders to offer consumers with 4 or more consecutive loans the option to repay the debt in a 6-installment “payment plan,” rather than in a single payment on the consumer’s next payday. Data for this 6 month period reflects these trends:
- Over 200,000 payday loans were eligible for payment plans. Consumers elected to take payment plans on 21 percent of those loans. Approximately fifty percent of payment plans were successfully completed by the end of 2007.
- Almost 80,000 consumers were eligible for one or more payment plans. Fifty percent of those consumers chose a payment plan.
- The payment plan law affected lending practices: 18 percent of payday lenders prohibited or restricted future loans when consumers selected payment plans; 17 percent of payday lenders set cooling-off periods to avoid consecutive loans.
- For the first time, there was effectively no growth in the dollar amount of payday loan volume (only 1 percent over 2006). By comparison, loan volume for 2004, 2005, and 2006 increased over 25 percent each year. This lack of growth may be due to the fact that payment plans are usually 3 months or longer and a consumer cannot obtain a new loan from the same lender while on a payment plan.
Small Installment Loans
Small installment loans are $1,000 or less with loan terms of 90 days to twelve months. In 2007:
- The number of licensed lenders making small installment loans more than doubled from 21 in 2006 to 53 in 2007. Some of these lenders also make payday loans.
- Small installment lenders loaned $16.5 million in 2007 to 13,923 Colorado consumers. This represents a 13 percent increase in loan volume over 2006.
- The average small installment loan increased 17 percent to $455 from $388 in 2006.
- The average loan was written for 7 months. However, almost three of every four loans are refinanced by the same lender after 3 months.
- Average annual percentage rates varied from 65 to 160 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. These include automobile and educational loans and those for consumer household products. The report reflects the impact of the economic downturn in 2007:
- The number of licensed supervised lenders decreased by 37 percent to 1,105. This was due to the closure and merger of mortgage companies due to the “mortgage meltdown” and the conversion of some mortgage lenders to subsidiaries of national banks or federal savings associations that are exempt by federal law from state licensing and regulation.
- Supervised lenders made over $1 billion dollars in loans to Colorado consumers, a 54 percent decrease from 2006. The decline was based almost exclusively on the reduction in subprime mortgage loans.
- The average loan amount was $16,349, a 32 percent decrease from 2006 when the average loan was $24,102.
- The average annual percentage rate for most closed-end supervised loans was 16 percent.
- Both the number and dollar amount of mortgage loans decreased by almost two-thirds from 2006.
- The percentage of bankruptcy filings by borrowers increased by 71 percent from 2006.
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 reports for 2007 and prior years are available at: http://www.ago.state.co.us/UCCC/AnnualReports.cfm.html