DENVER – Colorado Gov. Jared Polis has signed into law a measure aimed at preventing online and out-of-state lenders—often referred to as “rent-a-banks”–from making high-cost loans in violation of state law.
The new legislation has drawn strong support from a number of consumer groups that have been fighting what they call the “growing problem of lenders end-running state consumer protections through evasive schemes and legal maneuvering.”
Evasion of state laws and caps on interest rates are typically accomplished by “partnership” schemes between on-line lenders and a handful of out-of-state, state-chartered banks, critics have said, noting the schemes utilize a provision of a federal law, the Depository Institutions Deregulation and Monetary Control Act (DIDMCA), a 1980 law that permits banks to “export” interest rates from their home state to states with tighter lending laws.
DIDMCA gives states the right to opt-out of this provision, and the new Colorado law asserts that right.
30% APRs
In Colorado, online lenders seek to charge annual rates of 30% to 36% for large loans, some as large as $10,000 to $30,000. Often these are debt consolidation loans, which are by definition targeted to borrowers already over-burdened with debt, the consumer groups said, noting Iowa has been opted out of DIDMCA for decades and has quickly shut down attempts at evasions over the years.
“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,” said Lauren Saunders, associate director of the National Consumer Law Center. “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.”
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