May 31, 2018 09:17 AM UTC

Initiative 126 Launches To Stop Predatory Payday Lending Usury

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• by: Colorado Pols

A press release from a coalition of groups who launched a ballot initiative campaign to cap interest rates on so-called “payday loans”–a finance product aimed at struggling consumers that frequently traps borrowers in a cycle of unaffordable debt at interest rates that would blow creditworthy consumers away:

A coalition of community, faith, and advocacy organizations have come together to stop predatory payday loans in 2018. They are working to qualify an initiative for the November ballot that would cap payday lending interest rates. Payday lenders are currently exempted from the state usury cap, allowing them to charge over 200% for short-term loans of up to $500.

Payday lenders strip $50 million per year in interest and fees from financially-strapped Coloradans. The average loan lasts 97 days, and some customers take these loans one after another, spending more than half the year in high-cost debt. The average loan of $392 costs customers an average $119 in interest and fees to borrow money for 97 days. With a default rate of 23 percent — almost 1 in 4 loans — many customers face insufficient funds and overdraft fees, collection efforts, and even bankruptcy for a loan that was supposed to help them through a shortfall.

There was a legislative attempt at reforming this industry a few years ago that made a few changes beneficial to borrowers, most importantly changing the terms of payday loans from a two-week full repayment to a six-month plan. Despite this change, consumers continue to be subject to finance terms from payday lenders that result in a loan product of dubious net value just to bridge the gap to the next pre-spent paycheck. Initiative 126 would cap the allowable interest on payday loans at 36%, which most people would still consider to be awfully damn high.

Back when payday lending reform was a major issue in the Colorado legislature leading up to the passage of the 2010 reform legislation, longtime readers will recall this this blog was hit by a large volume of spam posts linking to various payday lending outfits. We were never quite sure if there was a connection between the legislative effort in Colorado to rein in payday loans and the mass spamming of our blog, but we resolved in the wake of that episode to enthusiastically support all efforts to regulate these loan sharks into an ethical business model. Or failing that, put them out of their predatory business entirely.

And please, spare us the disingenuous pleas of mercy for the minimum-wage employees of payday lending shops. There are better jobs waiting for all of them in today’s fully-employed economy. The damage done by predatory lending eclipses any value of those low-wage jobs.

Colorado will be just fine without loans that hurt people more than they help them.