Capping Interest Rates at 36% Is Just the Beginning

In November 2018, Coloradans overwhelmingly voted for a decisive step towards financial empowerment, banning triple-digit payday loan interest rates, capping them at 36% APR (including fees). Still, pushing back on one predatory product doesn’t mean everyone has safe, affordable access to banking and loans. We still have a two-tiered system where only some people get reasonable interest rates and lower banking costs. That’s not good enough.

Did You Know?

  • Nearly 22 percent of Coloradans and 49 percent of households of color are either unbanked or underbanked, relying on what are often predatory alternative financial services because mainstream banking fails to meet their basic financial needs
  • Forty-five percent of individuals lack a rainy-day fund to cover expenses for three months, in case of emergencies such as sickness, job loss or economic downturn. This, in part, explains reliance upon alternative financial services.
  • Only 68 percent of all residents save for an emergency.
  • More than 13 percent of all residents have zero net worth, predominantly Coloradans of color.

Communities around the country are taking action to increase access to safe and affordable credit, help people avoid high-cost banking products, and build financial well-being. They’re seeing great success in building wealth and establishing financial stability for their communities. In particular, a combination of free one-on-one financial coaching, an expansion of safe and affordable banking products, and a backstop fund to lower the rates on credit-building loans are especially effective.

Over one’s lifetime, the high cost of check cashers and other financial services adds up to an extra $40,000 for banking services. Bank fees and charges can add up too, which makes safe and affordable banking an essential component of any effort. Financial coaching goes beyond financial education, working one on one with clients over several months to understand their financial goals, help develop lasting healthy money habits and empower clients to take responsibility for their decisions. Financial coaching combined with affordable banking and low-cost loans have shown to have significant impact: lowering clients’ debt, increasing savings and raising credit scores, all significant indicators of financial stability and well-being.

The Bell Policy Center is working with partners on the Financial Equity Coalition to explore opportunities to build a statewide effort to bring financial empowerment to all Coloradans. We know much of the inequality in our economy is the result of intentional policies and systems, so we must be intentional about our solutions to be sure that we are tackling these issues at their root cause. We are centering the input, perspectives, and leadership of those most affected in developing and implementing any potential solutions. 

The Planning Process

We are currently in the planning process for this initiative, which will include:

  • Roundtable meetings with communities that use alternative financial products and experience high costs with traditional banks and loans
  • Stakeholder conversations with financial service providers
  • Meetings with state leaders to highlight the potential of financial empowerment initiatives and identify potential homes for statewide effort
  • Conversations with local governments to assess local interest & readiness

This will culminate in the creation of a strategic blueprint — informed by these community and government meetings — that outlines the scope, resource needs, and potential structures for this initiative.

There is a systemic history in America in which the wealthy and powerful solicit information and participation from marginalized communities without ever truly helping to address the deepest root causes of the issue. In this process, we’re committed to not repeating those harms. We’re actively engaged in conversations to achieve not only our short-term goals of hearing truth from community our midterm goal of getting the vast majority of Coloradans safely and affordably banked, but also building access to funding and participation in decision making throughout. Our long-term goal is the participants engaged in this effort build ownership of the means they determine most effective toward creating sustainable financial well-being.*

Capping payday loan interest rates was just the beginning. Together we believe we can create financial well-being for all Coloradans if we intentionally expand the process and center the leadership of those communities so often targeted by payday lenders.

*Thank you to C. Benzel Jimmerson, Principal and Founder of Diversity Dynamics and member of the Financial Equity Coalition for this framing.