Andrea Kuwik
Danny Katz
Sneaky add-on fees are everywhere. Want to check a bag on a plane? Pay up. Buying a concert ticket online? Better watch the bottom line. And let’s not even get started on cable TV bills.
Consumer finance companies have their own bag of tricks, which Colorado consumer advocates have pushed back on for years. This legislative session, the Colorado Senate has the opportunity to protect hardworking Coloradans from deceptive practices by some consumer finance companies by passing HB 24-1148, which would require a more inclusive calculation of finance charges on certain consumer lending transactions.
Here’s the problem we’re trying to solve: Some consumer loans tack on additional products — like credit insurance — that may provide little value to the borrower, but add large profits to an affiliated insurer. These practices can drive up the total cost of these loans by hundreds of dollars — making it more challenging to pay them back. Often, products like insurance are rolled into the loan, so customers take on additional debt to cover the costs.
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State attorneys general in several states found some lenders were misleading consumers about the use of credit insurance. In one allegation, the attorneys general alleged Mariner Finance, a subprime consumer lender, charged a consumer for four insurance policies she would have declined if she’d been aware of them, with a total cost (including interest) of $1,236 on a $3,000 loan.
“This mega lending company preyed on and deceived consumers by hiding fees and costs for products, while illegally soliciting existing borrowers who already were struggling to afford payments to take on even more debt,” Pennsylvania Attorney General Michelle Henry said of the litigation in a news release. “Pennsylvania now has 11 state partners in litigation that seeks restitution for consumers and complete makeovers of all existing loan agreements.”
In another instance, installment lender OneMain Financial last year reached a settlement with the Consumer Financial Protection Bureau regarding allegations it tricked consumers into signing up for insurance policies. Though OneMain did not admit wrongdoing, it agreed to pay $10 million to harmed consumers and another $10 million in civil penalties.
Some lenders have used concerning tactics in Colorado, and it’s just not right. A 2022 report by the Center for Responsible Lending found several instances of Colorado consumers purchasing multiple insurance policies when borrowing. In one egregious example, Lendmark, a consumer lending company, added $5,000 of insurance premiums to a $10,000 loan. Had the lender included the cost of those premiums in the APR, it would have more than doubled to 47%, which exceeds Colorado’s legal interest rate limits on consumer loans.
In 2022, the Colorado Attorney General’s Office found about 35% of all supervised loans had at least one add-on insurance product.
For more than two decades, the Bell Policy Center and CoPIRG have been part of a community-wide effort to ensure consumer borrowing protections, including enactment of reasonable lending rates and support of the creation of lower cost lending products for Coloradans. However, the current ability of lenders to exempt some add-on products and fees from APR calculations effectively circumvents these regulations.
We can’t let that go unaddressed.
HB24-1148 would continue the state’s longstanding commitment to consumer lending protections. It will ensure all the costs associated with a consumer loan are considered, and will reduce the incentives for lenders to drive borrowers deeper into debt to pay for products that enrich the lender without necessarily benefiting the borrower. We urge the Senate to pass HB 24-1148 and send it to Gov. Jared Polis for signature.
Andrea Kuwik is the director of policy and research for the Bell Policy Center. Danny Katz is the executive director of CoPIRG.
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