You might not realize it, but Colorado laws prevent predatory lending by setting the upper limit that banks can charge on loans at an APR of 35%.
Not that we would ever recommend anyone to go into debt at this overwhelming level of interest, but it’s good consumer protection policy that most states have adopted.
But one type of loan, paycheck advances known as payday loans, use a fee to charge customers an average of 129% APR on small, short-term loans, according to recent reports.
Proposition 111 would end the astronomical fees charged on these loans to bring the maximum APR down to that of other types of loans and to protect consumers from a cycle of debt that siphons their income, sometimes automatically, with the lender withdrawing the loan. money from borrowers’ accounts.
Protecting borrowers is the right thing to do and we urge voters to say ‘yes’ to Proposition 111.
According to Rich Jones, director of policy and research at Colorado’s economic advocacy group, the Bell Policy Center, Colorado lawmakers rewrote the consumer credit code in 2000 to allow for a proliferation of lenders on salary.
A few years later, lawmakers passed a cap on the interest that can be charged at 45%, but lenders can charge a fee that can sometimes approach the loan as close to 200% APR.
Proposition 111 would remove the ability to charge a fee and cap interest at 36% of the APR.
This is no small problem. In 2016, the state said 207,000 people took out 414,000 payday loans worth $ 166 million and paid about $ 50 million in loan fees.
We do not accept the argument that this will end the availability of small emergency loans for low income or high risk borrowers. In fact, at the rates charged, most of these customers would be better off applying for a credit card, even with high interest rates and monthly fees.
Americans generally need to do better at managing their debt, but charging 129% on a loan of up to $ 500 for up to six months is playing with the system to trap customers in debt.
And the federal government has agreed and set a limit on the interest that can be charged for payday loans to members of the military. Jones says the cycle of indebtedness created by these loans created a problem with military readiness.
This is one of those policy areas where there seems to be a broad bipartisan consensus that setting reasonable limits on these loans is the right thing to do, but the payday loan industry has been lobbying. of the State Capitol to successfully overturn legislation that reach these limits.
Voters should take action and vote to impose these regulations on the payday lending industry.