The numbers surrounding Colorado’s paycheck loan industry speak for themselves.
In 2016, 207,000 Colorado residents went to a paycheck loan broker, many more than once, taking out a whopping 414,000 “payday loans.”
Payday lenders are clearly big, big business in Colorado.
Accumulatively, these brokers lent more than $166 million. Borrowers paid an astounding $50 million in fees and interest that year on the small loans.
That means that the average payday loan in Colorado in 2016 paid a whopping 129 annual percentage rate.
With loan-shark rates like that, it’s easy to see why the payday lending industry has grown so much in Colorado, and why, even with a dismal default rate of almost 1 in 4 loans, it’s a lucrative business to be in.
Worse than the exorbitant interest rate is the fact that many people become trapped in a cycle of debt with these loan programs, paying hundreds in interest and fees before finally defaulting on the principal.
Not only are the payday lenders allowed to charge 45 percent interest rates on the loans, they can add a bevy of fees and charges to milk people of their meager paychecks, just because they have no credit, bad credit or no experience with the misery these loan sharks can inflict.
It works like this. A guy working a low-wage jobs gets a flat tire. With no money for a new tire, he risks missing work or losing his job. With no credit or options, he borrows $125 for a new tire. When he gets paid 10 days later, he now owes a 20 percent origination fee of $25, $7.50 monthly maintenance fee and one month’s interest of 43 percent, about $4.50. His $125 loan now costs him $162. He can’t pay it all back, so he takes out another payday loan to make the payment on his first one. That racks up more fees and more interest. Within a few weeks, most, if not all of his paycheck goes for his payday loan payments that started when he needed money for a tire to get to work.
It’s not an exaggeration, and it’s not unusual. The industry is considered so predatory and so dangerous to those who are desperate or naive or both, that prime potential victims such as military installations warn people off of them.
Big employers across the country are now starting their own payday loan services for employees to keep them away from paycheck loan centers. Companies like Walmart are offering a humane and sensible program because they’ve seen their own employees trapped in the pay-day loan cycle these loan-shark businesses create.
It’s hardly a new story. These lenders have had the state Legislature under their control for years. Despite numerous attempts to regulate payday loan sharks, a 2010 bill that actually made it into law only created the sad system the industry gets away with now.
This year, voters get to decide how to regulate payday lenders because these meaningful reforms appear as Proposition 111 on their ballots courtesy of a citizen initiative.
Only voters can do what state lawmakers won’t.
The proposed reforms are fair to the lending industry and helps to protect borrowers from financial ruin and misery. It limits loan interest rates to 36 percent and eliminates the gravy-train fees lenders are allowed to impose on borrowers.
While it’s not perfect, it creates a more equitable loan program for borrowers and still allows for lenders to make a substantial return on loans through high interest rates.
Industry officials say the measure will force payday loan companies out of Colorado, which provide a needed service.
Not likely. While the measure will help prevent these programs bleeding the state’s poorest and most desperate residents, it certainly allows for the industry to keep handing out small, emergency loans, but ones that borrowers at least stand a chance at repaying.
Vote yes on Proposition 111.