Colorado Law Takes Aim at Predatory Lenders

Advocate Andy

New law will outlaw so-called "rent-a-bank" lending that allowed 225% interest rates

A new Colorado law will effectively outlaw the practice of "rent-a-bank" lending that has allowed nonbank lenders to charge interest rates of up to 225% on short-term loans.

The law, signed by Gov. Jared Polis, removes Colorado from a federal law that allows lenders to exceed state interest rate caps by "renting" a charter from a bank located in a state where higher interests rates are allowed.

The result means protection for Colorado consumers seeking short-term loans from nonbank lenders.

The National Consumer Law Center (NCLC) cheered the measure as a model for other states.

“I applaud Gov. Polis, Reps. Weissman and Mabrey, and Sen. Gonzales for protecting Coloradans from predatory lenders that use out-of-state banks to evade the state’s interest rate limits. Other states should follow Colorado’s lead and stop rogue, out-of-state banks from helping predatory lenders evade laws against high-cost lending and spread pain throughout the country,” said Lauren Saunders, associate director of NCLC.

In recent years, a number of high-cost nonbank lenders – including American First Finance, EasyPay Finance, Elevate, the auto title lender LoanMart, Opportunity Financial (OppFi), and the installment loan brands of the payday lenders CashNetUSA and Check ‘n Go – have teamed up with banks in states like Utah that have no rate caps, claiming their loans are bank loans exempt from state interest rate limits.

“Colorado's action shows that states have another powerful tool to prevent out-of-state predatory lenders from invading their state and abusing their residents,” Saunders added.

Saunders and NCLC noted that Colorado is among a handful of jurisdictions taking action against predatory, nonbank lenders.

"Colorado, the District of Columbia, and California have recently brought enforcement actions against rent-a-bank schemes."

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Andy Spears is a middle Tennessee writer and policy advocate. He reports on news around public policy issues - education, health care, consumer protection, and more.

Nashville, TN

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