A Colorado bill (HB23-1229) that would opt out of Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDA) (codified at 12 U.S.C. 1813d), a federal law enacted to create competitive equality between state-chartered banks and national banks, was approved by both the Colorado Senate and House of Representatives, and will be sent to the Governor shortly. As explained in our earlier blog, this is a curious move by the Colorado legislature because, while the legislation is certain to put Colorado-chartered banks at a competitive disadvantage, it’s not likely to have any significant effect on out-of-state banks. This is because the new law will be certain to take away Colorado-chartered banks’ ability to “export” Colorado rates, but it will apply to loans made by banks chartered in other states only if courts were to conclude (incorrectly, in our opinion) that such loans are made in Colorado, rather than from and in the states where the banks are located. Likewise, the resulting law would not affect loans made by national banks or federal thrifts.
An amendment to the bill added in a Senate Committee hearing late last month would except certain specifically defined “General Purpose Credit Cards” from the Colorado Uniform Consumer Credit Code (UCCC) limits on finance charges and fees. However, the bill’s definition of “General Purpose Credit Card” includes a curiously-worded 15% fee cap: among other requirements, the open-end credit plan associated with a “General Purpose Card” must not “charge fees, including pre-account opening fees, which exceed fifteen percent of the credit line.” This ambiguous phrase is subject to a variety of interpretations: the fee cap might be read to establish a limit on fees charged in the first year an account is open, an annual limit on fees, a limit on fees charged over another time period, or a limit on fees charged over the entire life of the account. Further, the language does not distinguish fees that reasonably should be excepted from a fee cap, such as fees triggered by a customer’s violation of contract terms (e.g., late fees, over-limit fees, returned payment fees) and optional convenience fees (e.g., expedited card replacement fees). See, for example, Regulation Z, 12 C.F.R. § 1026.52(a)(2), which does except such fees. Alternatively, the bill’s fee cap provision could be read to employ the term “including” as restrictive, meaning the only fees subject to the 15% limit would be pre-account opening fees. Moreover, this provision does not specify a point in time at which the credit line to be used as a basis for the limit is to be measured, as is the case in other fee limitation provisions: See, for example, Regulation Z, 12 C.F.R. § 1026.52(a)(1), which states certain fees must not exceed 25% of the “credit limit in effect when the account is opened”.
We also are curious as to why the Colorado legislature adopted a carve-out for “General Purpose Credit Cards” but not for private-label credit cards (credit cards usable only at a specific retailer or a small group of retailers). In testimony to the Senate Committee late last month, industry representatives requested that the general purpose credit card exception be expanded to include private label credit cards; however, the bill as passed by the Colorado Senate and House does not except private label credit cards from the Colorado UCCC’s finance charge and fee limits. Private label credit cards typically have lower credit lines than general purpose credit cards and are usually easier to qualify for, making them a suitable alternative that may help lower-income and “thin file” consumers establish credit. Also, private label cards often have no annual fees, and provide access to desirable retailer rewards programs. If the legislature’s purpose for creating an exception to the UCCC finance charge and fee limits is to make sure Colorado residents don’t lose access to credit cards, it’s unfortunate that consumers most in need of credit most likely will have less access and desirable rewards may become less available.
Other topics addressed in testimony to the Committee included the uncertainty as to the effect an opt-out would have on loans made to Colorado residents by out-of-state, state-chartered banks, since per federal law an opt-out would apply only to loans made in Colorado; and the potential general reduction in credit availability to Colorado borrowers the opt-out might cause.
If the bill is enacted as amended, the portions of the Colorado law opting out of Section 521 of the DIDA and establishing the carve-out excepting General Purpose Credit Cards from the Colorado UCCC’s finance charge and fee limits would take effect July 1, 2024.
The bill also amends certain requirements of the Colorado UCCC relating to small dollar loans; these small dollar loan amendments would be effective January 1, 2024.
The bill will become law 30 days after it is sent to the Governor, unless earlier signed or vetoed. We believe Governor Jared Polis is very likely to sign HB23-1229.