Colorado legislature anti-choice when it comes to your wallet

By Jon Caldara

Maybe you disagree, but I think competition and innovation are good things because, though they cause disruptions, consumers win.

The Colorado legislature strongly disagrees. If there were an award for sabotaging financial innovation and harming consumers, they’d be giving an acceptance speech right now.

Please don’t let the coming bureaucratic jargon scare you off. It starts with the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). Enacted in 1980, this federal law allows state-chartered banks to offer interest rates to folks in other states based on the laws in their home state. It’s a neat way to keep the financial market competitive and prevent states from turning into financial backwaters

But Colorado, in its infinite wisdom, is trying to opt out of this federal, pro-competition law with House Bill 23-1229.

For people living in Colorado, it basically means no marketplace for loans that cross state lines.

HB 1229 built a Great Wall of China around Colorado’s financial services sector to keep Mongol out-of-state banks away. That’s peachy protectionism for the banks that now don’t have to worry about competitors. Not so great for, well, humans. We humans like choices, even humans who are poor.

Like so many restrictions from our state’s leftist leaders, the concept of “pro-choice” is only meant for your body, not your wallet.

HB 1229 aims to cap interest rates charged by out-of-state banks, effectively kicking them out of Colorado while labeling it as a consumer protection.

Unsurprisingly, three trade organizations challenged this bill in federal court. They argue it conflicts with the federal DIDMCA, but also violates the Commerce Clause of the U.S. Constitution.

A judge recently issued a preliminary injunction to block the bill, highlighting what state a loan is “made in” depends on where the bank is, not where the borrower is. Unlike our legislators, it’s almost like the judge read the DIDMCA.

The judge’s ruling is a temporary win for consumers, but the real tragedy is Colorado’s elected officials didn’t foresee the chaos they were unleashing. They say they want Colorado to be a tech hub, but apparently not a financial tech hub.

By opting out of the DIDMCA, Colorado is essentially creating a credit desert, like Iowa, which also has restrictive laws around banking. Purportedly in Iowa only 0.16% of residents obtained short-term credit.

Driving out-of-state banks away means fewer options for auto loans, mortgages, credit cards, and small loans. And when competition dries up, prices go up.

What of the folks who are hit hardest, like those without any bank account (or, as I’m sure NPR would refer to them, “People currently experiencing unbankness”) and those with poor credit? Depending on how you count it, that’s up to 1.7 million Coloradans. These are people who struggle to access credit, and this bill makes it even harder.

The working poor, like everyone, have financial emergencies that pop up from a broken car to surprise medical bills. Without choices for short-term loans, these people end up running to the pawn shop.

A study by the Financial Health Network in 2023 found personal loans were less available in Colorado compared to states with more competition. Doubling down on making credit even less accessible is not only cruel, it’s insulting. The legal message to the poor is, you’re not smart enough to shop around for banks.

But wait, there’s more! The bill includes exemptions for national banks and certain credit card products.

This means big banks can still charge higher rates, while smaller, state-chartered banks are stuck with the caps. Goliath can keep his sword while David is forced to fight with a toothpick. This creates a financial landscape where the big banks win, and (beating this to death) consumers pay the price.

So, here we are, in the middle of a regulatory and legal quagmire. The litigation adds another layer of uncertainty, making it even harder for consumers to navigate the financial landscape.

And what do Colorado lawmakers have to say? At best, something along the lines of “Oops.”

As the legal battles rage on, let’s hope our lawmakers learn from this fiasco. It’s time to stop the knee-jerk reactions and start crafting policies that genuinely protect consumers without strangling the financial services market. Until then, Coloradans will continue to pay the price for their legislature’s hostility toward financial technology.