Subprime lending marked a sharp drop last year in Colorado, representing the state’s declining economy and slowing extension of credit, according to a report released yesterday by the Attorney General’s office.
New mortgage and installment lending dropped more than 50 percent even as lenders continued to collect and service more than $3 billion in previously-issued loans, said Attorney General John Suthers in a report released to the media.
Meanwhile, delinquencies and defaults on installment loans increased during the year. Suthers is encouraging consumers to stay in better communication with their creditors in order to avoid the consequences of not dealing with bad debt.
“Consumers in financial distress could face repossessions, foreclosure and impaired credit records,” he said. “More than ever, consumers need to communicate with creditors about their financial situations.”
The volume of payday lending, however, decreased by 11.4 percent. There was also a 13.1 percent decrease in the number of payday loans issued.
Payday loans are short-term and limited by law to $500. They carry very high interest rates of as much as 391 percent.
Colorado lawmakers are once again exploring the option of cracking down on the payday lending industry, including capping interest rates and fees. Previous attempts to limit lenders to 45 percent interest and a one-time fee, as well as allow borrowers at least a month to repay their loans, failed. But under the direction of the progressive Bell Policy Center, lawmakers may explore the option once again.
The number of Colorado residents obtaining payday loans increased by 1 percent to 303,462. But the number is inflated because consumers borrow from more than one payday lender, according to Suthers’ office.
Confirming concerns by payday lending critics that few of the loans are converted into payment plans, Suthers’ office stated that only 7 percent of payday loans made last year were actually turned into a payment plan. But approximately 75 percent of those payment plans were successfully completed.
Suthers encouraged more lenders to consider payment plans.
“Creditors also should consider reasonable work-out plans or loan modifications and engage in responsible lending practices,” he said.
Other lending findings for 2008
Ą Small-installment loan amounts increased 29 percent to $589;
Ą Small-installment loan volume decreased 4 percent;
Ą There was a 7 percent increase in small-installment loan consumers;
Ą Uncollectible small-installment loans increased from 8 percent to 9.7 percent;
Ą The number of licensed traditional supervised lenders decreased 40 percent to 654;
Ą Traditional loan volume decreased 53 percent, due to a 77 percent reduction in mortgage loans;
Ą Auto loans decreased by about 50 percent.
