A recently released report by Denver’s Bell Policy Center is one impetus behind the movement to add the “Colorado Limits on Payday Loan Charges Initiative” to the November 2018 ballot.
If passed, the amendment would lower the maximum authorized finance charge for payday loans to an annual rate of 36 percent.
Colorado’s 36 percent usury rate currently exempts payday loans. The initiative claims that payday lenders are charging up to 200 percent annually. It comes about eight years after the legislature enacted a law to reform payday lending practices in 2010. The 2010 law required all loans to be repayable over a period of time at lower rates.
In 2014, the Colorado Attorney General's Office released data that the law resulted in more affordable loan payments, fewer defaults, and lower prices for payday loans. It decreased payday lending by 60 percent; borrowing dropped from $1.5 million in 2010 to $444,333 in 2011.
Nick Bourke, a Pew Charitable Trust researcher in the payday-lending field, said in 2016 that after the law went into effect, payday lenders changed their repayment process. Instead of borrowers being required to repay the loan in full in a few weeks, fees were incorporated into high-cost installment loans that could be repaid over a few months.
“There will be fewer two-week payday loans because of the CFPB rules, but the industry has already shifted to installment lending that is paid over several months. There will still be high interest rate payday loans on the market,” Bourke told the Associated Press.
Since the laws enactment, the Bell Policy Center said that loopholes have resulted in Coloradans paying $50 million in fees in 2015. Its president, Scott Wasserman, remarked that those impacted the most by payday loans are “military veterans, communities of color, seniors, and Colorado families who are working hard to get ahead.”
The center states that, “the majority of all payday loans in Colorado were at an APR over 100%. Some loans were at an APR over 200%.” In 2016, Coloradans who took out payday loans paid an average annual percentage rate (APR) of 129 percent.
Its report analyzed data from the Colorado Attorney General’s Consumer Credit Unit (2016 Deferred Deposit/Payday Lenders Annual Report) and a 2016 Demographic and Statistical Report produced by the Attorney General’s office. Data evidenced that on average, payday loan customers took out two loans every year. Some took out more than two loans from several lenders. Of these loans, 23 percent went into default in 2016.
Members of the Colorado Financial Equity Coalition, a group of public, private, and nonprofit organizations, are collecting signatures to have the initiative added to the ballot. It needs to collect 98,492 signatures to be filed with the Secretary of State’s Office by Aug. 8.
“Payday lenders say they provide access to credit, but what they provide is access to unmanageable debt," Rosemary Lytle, a member of Colorado Financial Equity Coalition and president of the NAACP State Conference, said in a statement. "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.”
The Center for Responsible Lending (CRL), a group supporting the ballot initiative, notes that communities with more than 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).” These communities, it states, are targeted “at higher frequencies than in white neighborhoods, even those with lower-income levels.”
A CRL director, Ellen Harnick, pointed to the fact that the business model of payday loans is to repeatedly offer high-cost loans to borrowers who can least afford them.
Another coalition member, Nathan Davis Hunt, of the Interfaith Alliance of Colorado, added, “Capping payday loan interest rates is a vital step toward building a more equitable and inclusive Colorado. These loans impose the greatest cost on those who can least afford them.”
Payday loans are used for a variety of bills, including student loans, auto and home loans. CRL research found that borrowers were not renewing loans but instead paying off existing loans while taking another out concurrently. This method accounted for nearly 40 percent of Colorado’s payday loans in 2015. CRL research points to the increased practice of re-borrowing in three years of 12.7 percent from 2012 to 2015.
Coloradans re-borrow less than the national average. The Consumer Protection Finance Bureau reported in 2016 that about 60 percent of all loans are renewed at least once; 22 percent are renewed at least seven times. Payday loans accounted for $7 billion spent by roughly 12 million Americans every year, according to a 2016 Pew Charitable Trust report.