Predatory Payday Lending in Colorado

Characterized by high interest rates and fees and short payment terms, payday loans offers short-term loans of $500 or less. In Colorado, the minimum term is six months. Currently, predatory payday lending in Colorado can have interest rates of 45 percent plus origination and maintenance fees.

Protection from Payday Loans: What We’re Doing

In an effort to curb predatory payday lending in Colorado, the Bell Policy Center joins other consumer advocates taking steps to put a measure on the November 2018 ballot to cap payday lending rates and fees at 36 percent. The proposal has been submitted to the Office of Legislative Legal Services for review and comment and can be found here. It is initiative 126.

Already, 15 states and the District of Columbia have laws capping interest rates on payday loans at 36 percent or less. Over a decade ago, the U.S. Department of Defense asked Congress to cap payday loans at 36 percent for military personnel because the loan shops clustered around bases were impacting military readiness and the quality of life of the troops. However, the cap only protects active-duty military and their families, so Colorado’s veterans and their families are still vulnerable.

Related: The Truth About Payday Loans: How Hardworking Coloradans Take the Bait & Get Caught in a Cycle of Debt

Currently, payday loans are exempted from Colorado’s 36 percent usury rate. According to a report by the Colorado attorney general’s office, the average actual APR on a payday loan in Colorado is 129.5 percent. In some cases, these loans come with rates as high as 200 percent. This means Colorado families who need a small loan can end up trapped in a cycle of debt. In 2016, the average payday loan in Colorado was $392, but after the origination fee, 45 percent interest rate, and monthly maintenance fee, borrowers accrued $119 in charges to get that loan.

“Faith leaders and religious organizations, veterans’ groups, and community advocates have worked together for years to identify policies to protect consumers. They know these loan sharks are hurting Colorado – especially military veterans, communities of color, seniors, and Colorado families who are working hard to get ahead,” says Scott Wasserman, president of the Bell Policy Center.

Who’s Affected By Payday Lending in Colorado?

Payday loans disproportionately affect vulnerable Coloradans. This is particularly true for minority neighborhoods, which are home to more payday lending stores even after accounting for income, age, and gender. Saving and building assets is hard enough for many families without having their savings stripped away by predatory lenders. High-cost lenders, check cashers, rent-to-own stores, and pawn shops seem to be everywhere in low-income neighborhoods.

In fact, the Center for Responsible Lending (CRL) finds areas with over 50 percent black and Latino residents are seven times more likely to have a payday store than predominantly white areas (less than 10 percent black and Latino).

The rates on payday loans are lower than those in other states and borrowers in Colorado save $40 million per year over what they paid under the old rules. However, these loans are still expensive, having an average effective interest rate of 129 percent in 2016.

Reforms Helped, But Predatory Payday Loans in Colorado Continue

In 2010, Colorado reformed its payday lending laws, reducing the cost of the loans and extending the length of time borrowers could take to repay them. The law greatly decreased payday lender borrowing, dropping from 1.5 million in 2010 to 444,333 in 2011.

The reforms were lauded nationally, but recently, CRL found some predatory lenders are finding ways around the new rules.

Instead of renewing a loan, the borrower pays off an existing one and takes another out concurrently. This method actually made up nearly 40 percent of Colorado’s payday loans in 2015. CRL’s recent research shows re-borrowing went up by 12.7 percent from 2012 to 2015.

According to CRL, Colorado payday loan borrowers paid $50 million in fees in 2015. The average Colorado borrower took out at least three loans from the same lender over the year, and 1 in 4 of loans went into delinquency or default.

The Bell Policy Center and other members of the Financial Equity Coalition (previously the Fair Lending for a Thriving Colorado Coalition) seek to pass the rate cap ballot measure in November 2018. Here are what some other consumer advocate organizations had to say about the initiative:

  • “Payday lenders say they provide access to credit, but what they provide is access to unmanageable debt. The impact is especially hard on Colorado’s communities of color, where payday lending stores are located in higher numbers proportionally than in white neighborhoods. This widens the racial wealth gap as dollars are systematically drained from our communities.” Rosemary Lytle, president of the NAACP State Conference
  • “As people of faith, we stand united against business practices and financial products that violate our shared values. The exploitative design of predatory lending is unacceptable to the just and peaceable society our traditions guide us to create. Capping payday loan interest rates is a vital step toward building a more equitable and inclusive Colorado.” Nathan Davis Hunt, program director for the Interfaith Alliance of Colorado
  • “Payday loans and their triple-digit interest rates are debt traps for Colorado families struggling to make ends meet.  I am thrilled to support this initiative and a coalition of faith and community organizations who want to ensure fairness in lending for all types of loans in Colorado.” Corrine Fowler, one of the initiative proponents
  • “It is imperative that we act now to educate, engage, and empower our communities to fight for just lending. This means standing against unscrupulous payday lenders and preventing them from preying on our communities.” Reverend Dr. Anne Rice-Jones, the other proponent of the initiative
  • “Having to pay $119 to borrow $392 is ridiculous. We can and must do better. Payday lenders should have to abide by Colorado’s 36 percent interest rate cap like everyone else.” Danny Katz, director of CoPIRG 
  • “As people of faith, we are deeply concerned about exploitation of Coloradans through financial instruments that may seem helpful, but are in fact hurtful to families. This reasonable proposal is a way for Coloradans to say ‘no’ to excessive and unscrupulous rates in payday lending.” Peter Severson, director of Lutheran Advocacy-Ministry of Colorado
  • “Every year, payday loans strip $50 million in fees from Colorado’s struggling families. These loans impose the greatest cost on those who can least afford them.” Ellen Harnick, western office director for the Center for Responsible Lending

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