You may not realize it, but Colorado’s laws prevent predatory lending by setting the upper limit banks can charge on loans at 35 percent APR.
Not that we’d ever recommend anyone take on debt at that crushing-level of interest, but it’s a good consumer protection policy that most states have adopted.
But one type of lending, advances on pay checks known as payday loans, uses fees to charge customers an average of 129 percent APR on small, short-term loans according to recent reports.
Proposition 111 would shut down the astronomical fees being charged on those loans to bring the maximum APR back in line with other types of loans and to protect consumers from a cycle of debt that siphons away their income, sometimes automatically with the lender withdrawing the money from the borrowers’ accounts.
Protecting borrowers is the right thing to do and we urge voters to say “yes” on Proposition 111.
According to Rich Jones director of policy and research with the Colorado economic advocacy group the Bell Policy Center, Colorado lawmakers rewrote the consumer credit code in 2000 to allow a proliferation of payday lenders.
A few years later, lawmakers passed a cap on the interest that could be charged at 45 percent, but lenders can charge fees that can at times make the loan closer to 200 percent APR.
Proposition 111 would take away the ability to charge fees and cap interest at 36 percent APR.
This is no small problem. In 2016, the state says that 207,000 people took out 414,000 payday loans worth $166 million and paid an estimated $50 million in loan costs.
We don’t buy the argument that this will shut-down the availability of small emergency loans for low-income or high risk borrowers. In fact at the rates being charged, most of these customers would be better off applying for a credit card, even one with high interest rates and a monthly fee.
Americans must do better in general about managing our debt, but charging 129 percent on a loan that is up to $500 for maximum of six months is gaming the system to trap customers in debt.
And the federal government has agreed and set a limit on interest that can be charged for payday loans to members of the military. Jones says the debt cycle created by those loans was creating a problem with military readiness.
This is one of those areas of policy where there seems to be broad bipartisan consensus that putting reasonable limits on these loans is the right thing to do, but the payday lending industry has mounted lobbying efforts at the state Capitol to successfully shut down legislation that would achieve these limits.
Voters should take action and vote to impose these regulations of the payday lending industry.
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