AFSA Supports Colorado Consumers’ Access to Credit
The American Financial Services Association filed a lawsuit in Colorado federal court today with two other national trade groups challenging a state statute that violates federal law by imposing Colorado’s interest-rate caps on loans made to that state’s residents by state-chartered banks that are not located in Colorado.
We filed this suit not only because it violates federal law, but because of the great financial harm the upcoming law, HB 23-1229, presents for Colorado consumers, particularly those most financially fragile in these uncertain economic times. This bill not only reduces choices for consumers, but creates an uneven playing field for state-chartered financial institutions against national banks.
As background, HB 23-1229, scheduled to take effect on July 1, 2024, was enacted to curb such predatory lending as payday loans. But as detailed in the complaint, the bill’s cap on interest rates is overly broad, and is inconsistent with the federal Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA).
The three plaintiffs – AFSA, the National Association of Industrial Bankers, and the American Fintech Council – represent national, regional, and state-based responsible, ethical lenders. Some members operate or utilize state-chartered banks and offer a variety of credit products to Colorado consumers, including personal installment loans, buy-now-pay-later (BNPL) loans, and store-brand credit cards. These products are provided in a range of rate and fee options, sometimes – to account for credit risk – above Colorado’s rate caps but below the rate caps in the banks’ home states.
Because federal law allows federally chartered, national banks to export interest rates, HB 23-1229 will not prevent them from offering these same types of loans to Colorado residents at rates that exceed Colorado’s interest rate and fee caps. We’ve seen the unintended consequences of policies like this in states like Illinois and New Mexico, where policymakers imposed what they claimed were consumer protection laws that ended up significantly harming the very people they were trying to help, while also creating credit deserts for financially vulnerable consumers.
Colorado consumers deserve to have choices for their credit needs, with loan products that are affordable and transparent. The Colorado proposal will reduce consumer options, and without competition will give national banks little incentive to keep interest rates and fees affordable and will unfairly penalize Colorado consumers who need greater financial flexibility, not less.
While this legal challenge is not directly connected to other AFSA efforts to encourage pro-consumer credit policies and protections, it comes at a time when AFSA is running a national education campaign focused on encouraging clear and certain, pro-consumer rulemaking at the federal Consumer Financial Protection Bureau. And this Colorado suit does spotlight some of the same issues we are highlighting at the federal level, such as policies that conflict with state law and reduce credit options, particularly for those consumers with less than perfect credit.
These efforts are focused on two core themes: First, that every consumer should have access to some form of credit, and preferably some choices to meet their needs, and second, that protections are important for borrowers and lenders alike. In this case, state-chartered institutions should be able to compete on a level playing field with federally chartered institutions.
March 25th, 2024
