Colorado’s Proposition 111 goes after payday lender interest rates
The Glenwood Springs Post Independent, in conjunction with other Colorado Mountain News Media group newspapers, is running a series of stories on the statewide measures that are on the Nov. 6 ballot. These stories are intended to help explain the ballot questions, and will be running before the election. Ballots are being mailed out this week.
Proposition 111 has not garnered nearly the same amount of media attention as some of the bigger statewide ballot initiatives that seek new regulations on conducting business in Colorado. But many of the arguments are the same when it comes to the proposal to place interest rate limits on payday loan services.
According to a legislative declaration on the Colorado Secretary of State’s website, “The people of this state find and declare that payday lenders are charging up to 200 percent annually for payday loans, and that excess charges on such loans can lead Colorado families into a debt trap of repeat borrowing.
“It is the intent of the people to lower the maximum authorized finance charge for payday loans to an annual percentage rate of 36 percent.”
Because of their small size of $500 or less and easy accessibility, short-term, or payday, loans do not require a credit check.
The industry currently adheres to a fee structure, which allows lenders to first charge an origination fee of up to 20 percent on the first $300 borrowed and an additional 7.5 percent on any amount over that. Lenders may also charge customers a 45 percent interest rate per year per loan. Lenders may also collect monthly maintenance fees of $7.50 per $100 loaned.
Proposition 111 would do away with the current fee structure and instead implement a maximum annual percentage rate (APR) of 36 percent.
Supporters of Proposition 111, as outlined in the legislative declaration, believe the current fee structure lines lender pockets too much at the expense of Colorado families.
As outlined on the Secretary of State’s website, currently, a $500 loan would cost $293, meaning the APR would equate to 189 percent. Under Proposition 111’s regulations, if the APR was currently at a 36-percent maximum, the same $500 loan would drop to a cost of $53.
Opponents of 111 say such rules and regulations would practically run the payday lending industry out of Colorado and subsequently take away a line of credit that serves numerous Coloradans who may not even qualify for other, higher types of loans.
Opponents also pointed out how the Colorado Legislature, in 2010, already passed regulations on the short-term payday loan industry that were enough.
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