OFFICE OF THE GOVERNOR Office of Legal Counsel 136 State Capitol Building STATE OF COLORADO Denver, CO. 80203 (303) 866-6390 (303) 866.6399 fax ving VIA EMAIL and HAND-DELIVERY — ‘chet Lal Couns ‘niggas August 23, 2010 Maa Se ‘lr Dep La ose Laura E, Udis, Esq, ‘Administrator Uniform Consumer Credit Code 1525 Sherman Stret, Seventh Floor Denver, CO 80203 Dear Ms. Ui: Rules of | write to provide comments from the Office ofthe Governor on Proposed Rule 17 of the f the Administrator of the Uniform Consumer Credit Code ("UCC The Office ofthe Governor followed with great interest your office's Administrative Interpretation of House Bill 104135 1, dated June 18, 2010 (“June Interpretation”), and the Revised Administrative Interpretation, ated July 29, 2010 (July Interpretation”). OF particular interest is topic number 12 of both Administrative Interpretations. The question posed in topic 12 is: “I a consumer prepay’ a payday loan before the end ofthe loan term, what fees must be refunded?” In both imexpretations your office identified a conflict in CRS. § $-3.1-105 between new and pre= ‘existing language in that section, The section, as amended by House Bill 10-1351, reads as follows: ‘A lender may charge a finance charge for each deferred deposit loan oR PAYDAY LOAN that may not exceed twenty percent of the figst tee hundred dollars loaned plus seven and one-half percent of any amount loaned in excess of three hundred dollars. Such charge shall be deemed fully earned as of the date of the transaction. THE LENDER MAY ALSO CHARGE AN INTEREST RATE OF FORTY-FIVE PERCENT PER ANNUM FOR EACH DEFERRED DE*0SIT LOAN OR PAYDAY LOAN, IF THE LOAN IS PREPAID PRIOR TO THE MATURITY OF THE LOAN TERM, THE LENDER SHALL REFUND TO THE CONSUMER A PRORATED PORTION OF THE ANNUAL BEFORE MATURITY TO THE LOAN TERM, IN ADDITION, THE LENDER MAY CHARGE A MONTHLY MAINTENANCE FEE FOR 2ACHLaura Udis, Esq. August 23, 20101 Page 2 of § DOLLARS AND FIFTY CENTS PER ONE HUNDRED DOLLARS LOANED, UP ‘TO THIRTY DOLLARS PER MONTH, THE MONTHLY MAINTENANCE FEE ‘TRANSACTION. ‘The lender shall charge only those charges authorized in this article in connection with a deferred deposit loan, House Bill 10-1351, § 4 (new language in small caps, conflicting language in bold). ‘The conflict identiied in both interpretations is tha, on the one hand, C.R.S. § 5-3.1-105 provides thatthe “finance charge” deseribed inthe first sentence ofthe section is deemed “fully earned” on the date ofthe transaction while, on the other hand, the fourth sentence of the section provides thatthe “annual percentage rate,” which includes the same “finance charge,” must be refunded tothe consumer on a prorated basis when the consumer repays the loan before the maturity date ofthe loan, In the June Interpretation, your office concluded thatthe new language audded tothe section by House Bill 10-1351 controlled resolution ofthe conflict. Inthe July Interpretation, your office reversed its position and concluded that the preexisting language in the section controlled. The Office ofthe Governor agrees with the reasoning and conclusion of the ‘June Interpretation that both the interest rate and the finance charge (collectively, the “annual percentage rate”) must be refunded on a prorated basis, and we disagree with the contrary July reasoning and conclusion. As the June Interpretation correctly sates, the apparent conflict should be resolved using the well-setied rule of statutory construction that the later legislative ‘enactment prevails, This interpretation is bolstered by the need to avoid an absurd result Reliance on post-enactment interpretations of legislators is misplaced The July Interpretation stated thatthe contemporaneous legislative history did not resolve the issue, but rather that “the Administrator recently learned that those involved in crafting the Ianguage resulting in the Revised version of the bill likely believed that only the 45% rate of interest must be refunded.” See Administrative Interpretation, July 29, 2010, p. 4. This is an improper basis for interpreting a statue. Itis well-established that “elematks ofa legislator made subsequent to the adoption of a statute conceming the inten ofthe legislation are, of course, not legislative history.” Colorado Dept. of Social Services v. Board of County Com'rs of Pueblo County, 697 P.2d 1, 20 (Colo. 1985), superseded by statute on other grounds; see also ‘Mason Jar Restaurant ». Indusirial Claim Appeals Office ofthe State of Colorado, 862 P.24 1026, 1030 (Colo. App. 1993) (rejecting a state legislatr's postenactment affidavit regarding a statute's meaning). While contemporaneous legislative history, such as floor and committee "House Bi 10-1951 expresly provided tha the “finance charge identified inthe rt emence of CRS. §$3.1- 10S s nl spat ofthe definition of “anual percentage rate.” Soe CRS. § 531-1023) roving that all financecharge tal be inlaed nthe caleultion of he anal percentage rae)Laura Udi, Esq ‘August 23, 2010 Page 3 of S debates, can inform statutory interpretation, post-hoe recollections are relevant, and infact, may not be considered The General Assembly and the Colorado Supreme Court have given clear, specific guidance on statutory interpretation. Firs, those interpreting a statute must look tits plain Janguage and the commonly-accepted meaning ofits words. Regional Transportation District v Lopes, 916 P.24 1187, 1190 (Colo. 1996) (citing Regional Transportation District v. oss, 890 P.2d 663, 667 (Colo. 1995). Second, ifthe statute evades plain meaning interpretation, contemporaneous legislative history may clarify ambiguity or harmonize conflicting provisions. City & County of Denver v. Board of Assessment Appeals, 947 P.2d 1373, 1377 (Colo. 1997); Jenkins v. Panama Canal Ry. Co., 208 P.3d 238, 241 (Colo. 2009). Waen conflicting provisions fare unambiguous and cannot be harmonized, one must turn tothe rules of statutery construction for ireconcilable statues. See Jenkins v. Panama Canal Ry. Co., 208 ?34 238, 242 (Cole. 12009), The Generally Assembly's two rules of statutory construction ae (1) specialized or localized provisions usually prevail over general provisions inapplicable here), and (2) the later legislative enactment prevails. 1 citing CRS, §§ 2-4-205 and 206. Lastly, statutes should not be interpreted to lead to absurd results. JBM Credit Corp. v. Board of County Com'rs, 888 P.2 250 (Colo. 1995). These tenets of statutory construction lead tothe inescapable conclusion House Bill 10-1351 must be interpreted in a manner such that a consumer must be refunded a prorated portion ofboth the interest rate and the finance charge when le or she repay’ his oF het Aeferred deposit or payday loan prior tothe loan's maturity date ‘The statute's plan language makes clear that annual percentage rates are refundable. Section 2 of House Bill 10-1351 amends CRS. § $-3.1-102, by adding a definition for the term “annual percentage rate.” See C.RS. § 5-3.1-102(1.5). Itstatss, in pertinent part, that “(all finance charges shall be included in the calculation of the annual percentage rate.” Jd. The upfront fee a consumer pays when geting a deferred deposit or payday loan isa “finance charge.” See C.RS. § 5-3.1-105, Section 4 of House Bill 10-1351 amends C.R.S. §$.3.1-105 to provide that [if the loan is prepaid prior to the maturity ofthe loan term, the lender shall refund to the consumer 8 prorated portion ofthe annual percentage rate based upon the ratio of time left before maturity to the loan term.” See C.R.S. §5-3.1-105 (emphasis added). In shor, the Act defines “annual percentage rate” to include finance charges, then it directs that annual percentage ‘ates be refunded pro-rata upon prepayment. Thus, the plain language af the Act provides that finance charges must be refunded pro-rata upon repayment, ‘The legislative history indicates thatthe tenn “annual percentage rte” includes finance chars. Legislative history ean help harmonize conflicting provisions o: clarify ambiguities. Jenkin, 208 P 34 at 241 Here, the Iuly Intepretation Found samething af an arity in ‘whether the General Assembly actually intended to use the defined term “annual percentage rate” in the pertinent context. Yet, as the June Interpretation provided, “i the legisative intentLaura Udis, Esa August 23, 2010 Page 4 of S as to refund only the 45% imerest on prepayment, ‘interest rate” rather than ‘annual percentege rate’ would have been used.” See Administrative Interpretation, une 18, 2010, p. 4, m.11 ‘The legislative history bolsters the June Interpretation’s assertion thatthe General ‘Assembly intended to use the term “annual percentage rate” as defined in the Act. On April 30, 2010, Senator Heath introduced an amendment to Section 4 of House Bill 10-1351. The ‘amendment changed an earlier instance of the term “annual percentage rate” to “intrest rate,” ‘bu left untouched the pertinent instance of the term “annual percentage rate,” which appeated in the very next sentence, Senate Amended Third Reading of H.B. 10-1351, April 30, 2010. Senator Hesth's stated purpase for the amendment was to “clarify” the provision’s language and ‘make the terminology more precise. Senate Floor Debate, April 30, 2010, 11:35:36 am, The fact thatthe use of tem “annual percentage rate” survived the clean-up process indicates thatthe General Assembly intended to use the defined term. “The later laislative enactment prevail; wanusl percentag: ates, including Finance charges, ze refundable “If statutes enacted atthe same or different sessions of the general assembly are imeconeilable, the statute prevails which is latest in its effective date.” C.R.S. § 2-4-206. This rule of statutory construction is not only prescribed by the General Assembly, it is also well- established in practice. The Office ofthe Governor found thirteen Colorado Supreme Court cases and twenty-five Colorado Court of Appeals cases, published as recently as 2009, hat held that the later legislative enactment prevails.” In none ofthese cases does the court treat this rule as optional. Here, the provision of House Bill 10-1351 that states, “If the loan is prepaid prior to he ‘maturity of the loan term, the lender shall refund tothe consumer a prorated portion of the annual percentage rate...” arguably conflicts with the earlier legislative enactment that states thatthe finance charge “shall be deemed fully earned as ofthe date of the transaction.” C.R.S. § 5-3.f- 105. To the extent that a confit exists between the two provisions, the language enacted as part, ‘of House Bill 10-1351 must control because its the later legislative enactment. Therefore, the full annuel percentage rate, as defined to inelude both the interest rate and finance charge, must bbe refunded on a pro-rata basis upon prepayment. ‘The July Interpretation should be abandoned it would lead to an absurd result. If the July Interpretation were to control in Proposed Rulle 17, borrowers who prepay debt on payday or deferred deposit loans would actually face more fees than they would prior tothe passage of House Bill 10-1351. This would be contrary to the stated legislative intent and would be an absurd result. For example, prior to House Bill 10-1351, a borrower who repaid a $300 loan in two weeks would pay 2 $60 nonrefundable finance charge, but would pay no interest ce 2 Se eg Jentns,208 Pa at 22; Ci of Florence v Pepper, 14S .34 654, 657 (Col. 2006; Slater. Kina, 997 B24 1196, 199 (Colo. 2000), rte. Industrial Commission, 682 P24 S11 (Cole App. 1984).Laura Us, E39, August 23, 2010 Page’ 5 of 5 ‘maintenance fee, fora total $20% annual percentage rate Ifthe July Interpretation were to control, a borrower who repaid a loan inthe same amount of time would pay a $60 nonrefundable finance charge as well as $5.19 in prorated interest, for a total 565% annual percentage rate. Increasing the annual percentage rate from 520% to 565% would frustrate legislative intent to the point of absurdity. For the forgoing reasons, it is our office's view thatthe June Interpretation should contro inthe rulemaking process, and section (1)G) of Proposed Rule 17 should be revised to conform {o that interpretation. Should you have any questions or wish to discuss this analysis, do not hesitate to contact me. Sincerely, W, Craig Welling Chiet Legal Counsel