1 Colo.Law. 1
1972, March, Pg. 1.
Loans Under the Colorado Uniform Consumer Credit Code
11972, March, Pg. 1Loans Under the Colorado Uniform Consumer Credit Codeby Joseph H. Groberg and Peter M. Van ZanteJoseph H. Groberg, Denver, is an associate with Ireland, Stapleton, Pryor & Holmes Professional Corporation. Peter M. Van Zante, Boulder, is an associate with the firm of Hutchinson, Black, Hill, Buchanan, & Cook.This article discusses the loan law contained in the Colorado Uniform Consumer Credit Code. This Code governs all "consumer loans" and, through its "consumer related loan" provisions, it also affects most other loans---including those made by individual casual lenders and those made for business purposes.
First a brief description of the Code is given; then several steps in the loan transaction are analyzed. Two very important sections are near the end of the article; they deal with consumer related loans and home mortgages.
The Structure of the CodeThe Code is enacted as chapter 73, C.R.S. 1963 as amended. (Hereinafter citations unless otherwise indicated are to chapter 73, C.R.S. 1963 as amended by 1971 Session Laws chapter 207.) The Code is presently composed of Articles 1 through 6, 9, and 12. Article 1 contains general provisions applicable throughout the Code; of special value is section 1-303, an index of all definitions contained in the Code. Article 2 covers the extension of consumer credit in sale and lease transactions; Article 3 covers consumer loans; Article 4 covers insurance in connection with the extension of consumer credit either by sale, lease, or loan; Article 5 contains restrictions on creditors' rights and creates some new debtors' remedies as against creditors; and Articles 6, 9, and 12 deal mainly with the administration and implementation of the Code.
Article 2 on credit sales and leases and Article 3 on loans contain most of the detailed substantive rules; the two articles parallel each other closely. However, they differ in many important aspects and one should always be careful to apply the sales article to sales and the loan article to loans.
2(E.g., Article 2 provides for a delinquency charge of up to $15, ten days after default in an installment sale; Article 3 provides for a delinquency charge of up to $5, twenty days after default in payment on an installment loan.)
Because this writing focuses on consumer loans, Article 3 is the main source of the new law discussed.
Which Lenders are Covered?Only a person regularly engaged in the business of making loans will be making consumer loans. § 3-104. However, other casual lenders will very likely be covered by the consumer related loan provisions, discussed infra.
What About Notification and Licenses?Any person who makes consumer loans, takes assignments of them, or undertakes direct collections of them must send a notification form to the administrator of the Code. §§ 6-201, -202. A fee of $10 must be paid with the notification form. § 6-203(1). An additional fee of $10 per $100,000 of loans outstanding in excess of the first $100,000 must be paid by all lenders other than supervised financial organizations. § 6-203(2).
Any lender other than a supervised financial organization which will charge more than 12% per year must be licensed. § 3-501, -502. Under the Code, which aims to facilitate entry of additional competitors into the small loan industry, licensing is free and the qualifications are not rigorous. §§ 3-502 to -507. Licenses are permanent unless revoked by the Administrator. § 3-503(4), -504. All lenders previously licensed under Colorado law are automatically licensed under the Code. § 9-102. For forms and information on notification or licensing contact the Office of Consumer Affairs, 1575 Sherman Street, Denver, 80203.
Which Borrowers are Covered?A consumer loan is a transaction in which: a) an individual b) borrows less than $25,000 c) repayable in installments or with some finance charge d) for personal, family, household, or agricultural purposes. § 3-104. A loan is a consumer loan even if it exceeds $25,000, if it is secured by an interest in land, e.g., home mortgages. § 3-104(d). But in most cases home mortgages are treated differently than other consumer loans. See Home Mortgages, infra.
Loans to organizations (§ 1-301(11)) are not consumer loans. Loans for business purposes are not consumer loans. However, both may be consumer related loans, discussed infra.
Refinancings (§ 3-205), consolidations of debts (§ 3-206), and conversions of debt to revolving loan accounts (§ 3-207) are also regulated by the Code.
What Should be Disclosed?For consumer loans and home mortgages the lender must comply with the Colorado disclosure rules or with the federal Truth-in-Lending regulations. § 3-301. The latter alternative means that compliance with federal law is, by itself, sufficient to comply with the Code. Thus at present, the Colorado rules on disclosure may be disregarded.
In the event a transaction is exempted from disclosure by Federal Reserve Board regulation, but is covered by Colorado law, Colorado law may be satisfied by complying with federal disclosure regulations as they would have been applied to the transaction had it not been exempted. § 3-301(3).
The disclosure provisions of federal Truth-in-Lending require that the lender state the finance charge and annual percentage rate involved in the loan. An easily understandable explanation of how to comply with this law is given in the booklet entitled "What You Ought to Know about Federal Reserve Regulation Z, Truth-in-Lending---Consumer Credit Cost Disclosure," which may be obtained free from the Federal Reserve Bank, Denver, Colorado.
Regardless of whether a lender complies with Colorado law, the federal disclosure
3requirements must still be satisfied. However, at this moment efforts are being made for Colorado to receive an exemption from the federal disclosure law. Federal Consumer Credit Protection Act §123, 15 U.S.C. § 1633 (1970). If this occurs, the Code literally interpreted would still seem to allow compliance with either its disclosure provisions or with the federal rules which would, in the absence of the state's exemption, be applicable. § 3-301(3). However, the general understanding seems to be that if Colorado receives a blanket exemption from federal law, then Colorado law will be the governing law and it alone should be satisfied. There have been proposals that the Colorado Administrator promulgate a regulation or propose legislation which would state clearly that, in the event of a blanket federal exemption, the Colorado act would be the sole source of law. Regulation Z sheds...