As discussed here, in April 2023, Colorado introduced HB 1229 that proposed to limit certain charges on consumer loans and simultaneously opt Colorado out of sections 521-523 of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). Sections 521-523 of DIDMCA empower state banks, insured state and federal savings associations and state credit unions to charge the interest allowed by the state where they are located, regardless of where the borrower is located and regardless of conflicting state law (i.e., “export” their home state’s interest-rate authority). However, section 525 of DIDMCA gives states the authority to opt out of sections 521-523. Indeed, Colorado initially opted out of DIDMCA when it was enacted, but later repealed its opt-out. This week HB 1229 was signed into law by Governor Jared Polis joining Colorado with Iowa and Puerto Rico as the only jurisdictions currently opting out.
HB 1229 intends to limit the charges that can be imposed by out-of-state depository institutions making loans to Colorado residents. For example, all state-chartered banks doing business in Colorado will have the interest rate on payday loans capped at 36%.
However, there are questions as to whether the legislation will result in reduced credit access to Colorado residents or is even effective. In Stoorman v. Greenwood Trust, a Colorado appellate court previously held that Colorado’s initial section 525 opt-out did not apply to credit card transactions between out-of-state state banks and Colorado residents, since the transactions were not deemed to be “made in” Colorado, as required for the opt-out to apply. 888 P.2d 289, 293-94 (Colo. App. 1994) aff’d 908 P.2d 133 (Colo. 1995) (en banc). Moreover, other federal precedent relating to interest rate exportation supports the conclusion that, so long as the bank appropriately establishes the loan program, when analyzing whether an opt-out should apply, loans are made in the out-of-state depository institution’s location, not the borrower’s state.
We will continue to monitor developments in this area and provide updates.