Proposition 111 caps interest rates on payday loans

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With payday lenders promising quick cash in a pinch, many Colorado residents can find themselves with high interest rate loans and a cycle of debt they cannot escape.

Proposition 111 in the November 6 ballot would cap the annual interest rate on payday loans at 36% and eliminate other finance charges and fees. If passed, the law will come into force on February 1.

Colorado payday lenders can legally charge more than 200% interest on all loans “targeting customers who are often in dire straits,” according to the “Yes to Proposition 111” campaign website.

Colorado would join 15 other states, plus Washington, DC, in capping rates at 36% or less.

The Consumer Financial Protection Bureau defines payday loans as small, short-term loans that are paid off in one installment and are not based on the borrower’s ability to repay the loan.

Payday lenders take $ 50 million a year from cash-strapped Coloradans, according to the Center for Responsible Lending, which supports Proposition 111.

In 2010, Colorado cracked down on payday loans, lowering the cost of loans, extending the minimum loan term to six months, banning the sale of ancillary products, and making origination fees proportionately reimbursable, which has Reduces the incentive for consumers to take out a new loan the first minute it is paid off, according to the Center for Responsible Lending.

This law has resulted in the growth of high-cost installment payday loans, CRL said.

Colorado’s average annual payday loan percentage rate was 129.5% in 2016, “with evidence of a continued downturn that keeps many consumers mired in debt for more than half the year.” , wrote the campaign supporting Proposition 111.

Payday loans by the numbers

The Center for Responsible Lending also found that areas in Colorado with more than half of the predominantly African American and Latino neighborhoods are almost twice as likely to have a payday loan store as other areas, and seven times as likely. likely to have a store that predominantly white areas. .

The average payday loan in 2016 was $ 392, but cost borrowers an additional $ 49 for monthly maintenance fees, $ 38 for set-up fees and $ 32 in interest, according to an attorney general’s office report. from Colorado.

The average loan was repaid in 97 days. Payday loan clients take out an average of two loans per year. Those who borrowed sequentially ended up paying an average of $ 238 in interest and fees to borrow $ 392 for 194 days.

Almost 25% of all loans taken out in 2016 defaulted.

Who supports him?

Yes to the Proposition 111 campaign, also known as Coloradans to Stop Predatory Payday Loans; the Democratic Party; The Bell Policy Center; Colorado Center on Law and Politics; and Colorado Public Interest Research Group Inc.

The main arguments in its favor

It lowers interest rates and stops adding high fees.

Proposition 111 “will put an end to outrageous interest being charged to borrowers who can least afford it,” Yes on 111 wrote.

Key argument against

Low-income residents with poor credit often have no other option for short-term loans.

Who is funding the campaign?

By the time of the campaign’s fundraising report filed on October 1, Coloradans to Stop Predatory Payday Loans had raised $ 1.56 million, with the bulk of the money coming from the Center for Responsible Lending in Durham, North Carolina, and the Sixteen Thirty Fund in Washington, DC.

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