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CRL Analysis Reveals High Costs and Potential Harms of Consumer Lending in Colorado

Thursday, December 15, 2022
Whitney Barkley-Denney
Charla Rios

Lenders squeeze borrowers with large balances, long terms, expensive and unnecessary add-on products

DURHAM, NC – Large, personal loans demand scrutiny from regulators and lawmakers in Colorado and elsewhere to ensure practices that harm consumers are stopped, concludes an analysis released today by the Center for Responsible Lending (CRL).

Analysis of loan agreements, industry reports and company websites show disturbing and costly practices by two large consumer finance companies, OneMain and Lendmark. The lenders are operating in Colorado under the Consumer Credit Code, which allows annual percentage rates of interest (APR) that are high for long-term installment loans of thousands of dollars. Even so, these companies are lobbying for looser limits on those rates.

“Our analysis shows evidence that these companies are laying heavy burdens of debt on Coloradans and upselling products that provide borrowers little to no benefit, jacking up the loan principal, adding costs that don’t show up in the APR, and at times extending the debt burden by renewing the loan,” said Whitney Barkley-Denney, deputy director of state policy and senior policy counsel for CRL. “Regulators and lawmakers across the country should take note of practices going on under the radar and put a stop to the harm being done. And of course, raising interest rates is certainly not appropriate for large loans with problematic terms.”

CRL examined loan agreements for the report, “Upsold and Weighed Down,” from court files in lawsuits on defaulted loans. The loans are taken for a variety of purposes, including home or auto repairs, vacations, and debt consolidation. The terms in the analyzed loans range from two to five years. They are frequently secured by collateral such as vehicles or household goods, and range from about $2,000 to $15,600.

“We are troubled by the practices we found within this segment of the market,” said Charla Rios, deputy director of research with CRL. “The loans are large and often inflated with add-ons. Renewals are common, often with little new credit. And the APR for these loans is quite high considering the large principals. Sound lending policy says the larger the loan, the lower the rate should be.”

One loan agreement showed a loan amount of $5,868.19 with an APR of 22.79% and a 5-year term. The finance charge came to over $4,000 for this loan, requiring a total repayment of $9,883.80.

OneMain and Lendmark also add-on credit insurance from which they profit further, and automobile club memberships, which inflate the lender’s profits but add little to no real benefit for the borrower. In reality, in the event of a loss, payment goes to the lender, not the borrower. In one egregious instance of harmful upselling, the cost of insurance and automobile club memberships added over $5,000 to what would have been a $10,000 loan.

In Colorado, these lenders are pushing for allowable interest rates to be increased to 36% from what is currently a blended system of rates from 15% to 36% APR, depending on the loan size. While CRL supports a 36% APR cap on small payday loans of $300 to $500, that rate is too high for larger, longer-term loans.

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Press Contact: Carol Parish carol.parish@responsiblelending.org