A new survey finds that Colorado voters strongly oppose the idea of raising interest rates on consumer loans. Opposition was widespread among voters across lines of race, party affiliation, and household income, but the intensity of opposition was especially strong among voters of color and those who had served in the military. Overall, 51% of voters said they would be "much more likely" to vote against a legislator who voted to increase interest rates. That number rose to 58% of military service-members or veterans, and 62% of non-whites.
At issue are consumer loans that typically range from $3,000 to $10,000, have loan terms of two to five years, and are often secured by personal property such as cars. "With loans this large, increases in annual interest rates can really add up," said CRL policy associate Ezekiel Gorrocino.
Raising the cost of these consumer loans is so unpopular with voters that 77% of those surveyed said they would be more likely to vote against a state legislator who voted to increase interest rates. The strongest opposition - 93% - came from voters with household incomes of $30,000 to $50,000—the voters most likely to be affected by a proposal now before the Colorado legislature.
A bill currently before the Colorado legislature would increase the interest rates that lenders could charge on all consumer loans larger than $1,000. Senate Bill 185 would increase the interest rates on most loans by over 2 percentage points. This would result in a 10% increase in the cost of these loans. The bill, pushed by OneMain, a large lender, would cause these rates to rise higher each year. Currently, the lender's borrowers have an average household income of $46,000.
With reference to a prior iteration of the proposal, 89% of those surveyed said they opposed raising interest rates from 28% to 36% on a $3,000 loan. The opposition was similarly strong among Republicans and Democrats and independents. Seventy-five percent of voters "strongly opposed" increasing the rates. Senate Bill 185 would raise the rates on such loans from 28% to over 30%, and would cause rates to rise automatically over time.
Proponents of the bill claim that raising rates will make more such loans available, and that unless lenders are permitted to charge more they will leave Colorado. Voters rejected these arguments by a wide margin. After hearing arguments for and against raising rates, voter opposition to raising interest rates increased to 90%. Among voters earning $30,000 to $50,000 per year, opposition rose to 97% after hearing arguments for and against the proposal.
"In addition to high interest rates, the cost of these loans is inflated by lenders' practice of packing the loans with extremely expensive credit insurance that is of little real value to consumers," said CRL Senior Policy Counsel Ellen Harnick. "The insurance premiums are so high that borrowers take on additional debt to pay for them."
"For all too many workers, it's difficult enough to make ends meet and move their families forward. Raising the cost of consumer credit would make it even more difficult. So it's not surprising that voters of color in Colorado oppose making these loans more expensive," said Rosemary Lytle, President of the Colorado State Conference of the NAACP. "This measure is not fair, it's not equitable, and it appears to put an additional 'tax' on working families who seek to pursue the American dream."
Christine Alonzo, Executive Director of the Colorado Latino Leadership Advocacy and Research Organization, agreed. "It is unfortunate that our families use these loans to make ends meet. However, because we are aware that many communities of color use these loans, it is imperative that we do not increase interest rates, creating further financial hardship for our families," she said.
The survey also found that Colorado voters support further reforms for other types of abusive lending practices. For example, payday loans in Colorado can be no larger than $500 and have a minimum 6-month loan term. A significant majority of Colorado voters support lowering the rates on payday loans from the typical cost of 120% to 36% annual percentage rate, the same rate as other small loans of the same size in the state.
Commissioned by the Center for Responsible Lending, the statewide survey asked 501 likely Colorado voters their opinions on payday loans, student debt and the state's economy. Taken between April 11 and April 14, 2016 by Axis Research, Inc., the margin of error for the survey is +/- 4.47 percent.
For more information, or to arrange an interview with a CRL expert, please contact Charlene Crowell at charlene.crowell@responsiblelending.org or 919.313.8523