Predatory Lending and Usury Laws

PublishedJun 30, 2022

5 minute read

There are many reasons you may find it difficult to qualify for a personal or small business loan. Banks or lenders may be unwilling to lend you money for a variety of reasons, such as poor credit, no collateral, or a criminal history. Unfortunately, some unscrupulous lenders will take advantage of your situation and offer you loans at excessively high interest rates. This article explains Colorado’s usury laws and how they can protect you from predatory lending practices.

The Bottom Line

If you have been a victim of predatory lending, you can sue for three times the amount of the total interest you paid.

Call Us if a Lender Took Advantage of You

Predatory lending practices can lead to the loss of property and other assets if left unchecked. The litigation attorneys at Robinson & Henry will advise you of your borrowers’ rights and fight tirelessly to recover what was illegally taken from you. Call 303-688-0944 today to begin your case assessment. Si gustaria hablar con nosotros en español, por favor llamenos al 720-359-2442.

Colorado Usury Laws

What are Usury Laws?

Each state has limits on the amount of interest a lender may charge. These are historically referred to as usury laws.

Usury involves lending money at excessive or unreasonably high interest rates. This practice is also known as “loan-sharking” or “predatory lending.”

The Colorado Uniform Consumer Credit Code (UCCC) governs the terms and conditions of consumer credit in Colorado. This includes setting maximum interest rates.

Legal Maximum Interest Rates

If there is no agreement spelling out the terms of the loan, interest rates are capped at 8 percent. Colo. Revised Statutes § 5-12-101

Otherwise, annual interest rates on Colorado consumer loans may not exceed 12 percent unless made by a licensed supervised lender. C.R.S. § 5-2-101

A supervised lender is a “financial institution that is a member of the Federal Reserve System or an institution whose accounts are insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration.” 24 Code of Federal Regulations § 202.6 A good example of a supervised lender is a mortgage lender.

Most consumer credit transactions are subject to the UCCC, including:

payday loans
automobile loans
second mortgages
state-issued credit cards
signature loans

Colorado’s consumer loan interest rate does not apply to savings and loans, mortgages, business loans, or agricultural loans.

Late Fees are Included in Interest

The Supreme Court of Colorado has ruled that “interest” also includes daily late charges that are a condition of renewing the loan after the initial default.

Forbearance fees also fit within the legal definition of interest. These are fees charged as a condition of temporarily abstaining from pursuing available post-loan default remedies, therefore allowing the loan agreement to continue. Blooming Terrace No. 1, LLC v. KH Blake St., LLC, 2019 CO 58, ¶ 1, 444 P.3d 749, 750

Interest Rates for Supervised Loans

A licensed supervised lender may not charge annual interest rates exceeding:

36 percent per year on loans of $1,000 or less
21 percent per year on loans of more than $1,000 but less than $3,000
15 percent per year on loans of more than $3,000

Negotiating a Higher Rate

Colorado’s usury laws allow parties to contract for a higher-than-market interest rate if that interest rate does not exceed 45 percent. Blooming Terrace No. 1, LLC v. KH Blake St., LLC, 2019 CO 58, ¶ 12, 444 P.3d 749, 752

Investigating Predatory Lending

The Consumer Credit Unit in the Colorado Attorney General’s Office regulates companies and individuals involved in consumer lending, debt collection, debt management, and student loan servicing. These include supervised lenders, credit sellers, collection agencies, credit counseling, debt settlement companies, and student loan servicers.

Additionally, the unit investigates complaints about lenders and creditors, and it takes appropriate disciplinary or legal action when a creditor violates the law.

The Consumer Credit Unit cannot give legal advice, nor can it represent individual consumers in lawsuits against creditors. Consumers may bring legal action against creditors under the UCCC.

Suing Bad Lenders

If you have been a victim of predatory lending, you may sue to recover the total interest paid. You may also request damages of up to three times the amount of interest paid. The treble amount recoverable is based on total interest paid, not only the total interest paid over and above the legal limit.

The state’s consumer credit administrator may also file a civil lawsuit against a creditor for charging excessive interest rates. The lawsuit may relate to transactions with more than one consumer.

If a court finds that the creditor has charged excessive interest rates, the creditor must refund the amount of the excess charge to the consumer. C.R.S. 5-5-201-202

Penalties for Bad Lenders

A creditor also may be ordered to pay a fine of up to three times the amount of the interest. In addition, the court may assess a civil penalty of up to $1,000 per violation. C.R.S. § 5-6-114

If you have been a victim of predatory lending, you also may sue to recover the total interest paid. You may also request damages of up to three times the amount of interest paid. The treble amount recoverable is based on total interest paid, not only the total interest paid over and above the legal limit.

A lender may not sue to recover interest on a usurious loan.

Predatory Lending and Criminal Usury

Predatory lending isn’t just bad business — it’s illegal. Predatory lenders who charge interest rates exceeding 45 percent can be found guilty of a felony.

Colorado law dictates:

Any person who knowingly charges, takes, or receives any money or other property as a loan finance charge where the charge exceeds an annual percentage rate of forty-five percent or the equivalent for a longer or shorter period commits the crime of criminal usury, which is a class 6 felony.
C.R.S. § 18-15-104

Predatory Lending Penalties

If convicted of criminal usury, you could face up to 18 months in prison and a maximum $100,000 fine.

Other Criminal Usury Charges

Financing Criminal Usury

Financing criminal usury is also a class 6 felony in Colorado. This applies to any person who provides money or property to another person with the understanding that the money may be used for criminal usury.

Keeping Records of Criminal Usury

Possessing or concealing written records of criminally usurious transactions is also a class 6 felony in Colorado. C.R.S. § 18-15-108

Prosecutors must prove you knew, or reasonably should have known, that the contents of the records were being used to conduct a criminally usurious transaction.

A Colorado Usury Lawsuit

In 2017, Colorado’s UCCC administrator sued two online lenders in a Denver district court for violating Colorado’s usury laws.

The UCCC administrator claimed that Marlette Funding, LLC, and Avant of Colorado, LLC, made internet-based loans to Colorado consumers that charged finance fees and delinquency charges exceeding the maximum 45 percent interest rate.

The UCCC administrator further claimed that Marlette and Avant’s credit agreements with Colorado consumers violated Colorado law by making those loans subject to the laws of the states of New Jersey (Marlette) and Utah (Avant). Meade v. Marlette Funding, LLC, 2018 Colo. Dist. LEXIS 3856, *1

Lenders Assert Usury Cap Loophole

Both companies contended that the loans were made by state-chartered, federally regulated banks, which later sold the loans to Marlette and Avant. The companies also asserted that the loans complied with New Jersey and Utah state laws (the home states of each bank).

Therefore, the companies argued, that the UCCC administrator’s state lawsuit was preempted by federal law.

The UCCC administrator maintained that federal law did not apply because the lenders were part of a “rent-a-bank” relationship.

Rent-a-bank relationships occur when a payday lender partners with a federally insured bank to take advantage of the bank’s exemption from state usury caps. In these partnerships, the federally insured bank makes the loan and the payday lender immediately purchases the loan from the bank.

This arrangement effectively allows the lender to rent the bank’s charter and circumvent state usury laws. Meade v. Marlette Funding, LLC, 2018 Colo. Dist. LEXIS 3856, *28-29

Lenders Lose in Court

After a three-year legal battle, the court ultimately sided with the UCCC administrator:

… the Court holds that the non-bank purchasers are prohibited under C.R.S. § 5-2- 201 from charging interest rates in the designated loans in excess of Colorado’s interest caps and, further, that CRB cannot export its interest rate to a nonbank such as Defendant Marlette, and finally, that the statute is not preempted by Section 27.
Fulford v. Marlette Funding

We Fight Back Against Predatory Lenders

If you have been the victim of predatory lending practices, our Litigation Team can help. Don’t let unscrupulous lenders destroy your future. Call 303-688-0944 today to begin your case assessment, o llame al 720-359-2442 para hablar con alguien en español.