Payday lenders strip $50 million per year from Colorado economy
Ballot initiative proposes to cap payday loan interest rate charges at 36 percent
Payday lenders charge Coloradans an average of $119 in fees and interest to borrow $392, with an average annual percentage rate of 129 percent. This removes $50 million per year from the Colorado economy, according a new report released this week by the Center for Responsible Lending.
“The bulk of the $50 million in fees that payday lenders strip from Colorado’s struggling families come from those who can least afford them,” said CRL Western Office Director Ellen Harnick, at a press conference Wednesday.
CRL is a member of the Colorado Financial Equity Coalition — a collection of public, private and nonprofit organizations committed to bringing financial security to communities throughout Colorado. Its report used 2016 data from the Colorado Attorney General’s office to determine the impact of payday lending on Colorado consumers.
According to the data, the average loan has a term of 97 days, and some customers take loans out one after another, spending more than half the year indebted.
“We should not sacrifice the financial well-being of Colorado families for the sake of payday lenders, whose business model of making repeat, high-cost loans to borrowers who cannot afford them …,” Harnick said.
Payday lenders acquire access to the customer’s checking accounts, taking money out regardless of whether there is enough money to cover the loan. That can lead to overdrafts or insufficient funds fees. Sometimes, it compels customers to take out another loan to cover living expenses.
The study also showed that delinquency or default occurred in 23 percent of Colorado payday loans taken out in 2016, suggesting a high level of financial distress for many payday customers.
Communities of color and veterans are among those particularly vulnerable to the pitfalls of payday lending.
“Payday lenders say they provide access to credit, but what they provide is access to unmanageable debt,” said Rosemary Lytle, president of the NAACP State Conference, after the press conference.
The last time reforms were made to payday lending practices in Colorado was in 2010, causing area businesses, such as Northwest Pawn Shop, to end the practice, said store owner PJ Nichols.
Online payday lending and payday lenders in other Colorado communities are currently exempt from Colorado’s 36-percent usury cap.
Hence, the coalition is working to qualify a ballot measure for the November 2018 election that would cap payday lending rates and fees at 36 percent.
“Congress passed a 36-percent cap on annual interest rates for consumer loans made to active-duty military, protecting them and their family members,” said Leanne Wheeler, principal of Wheeler Advisory Group and member of the veterans advocacy group United Veterans Committee of Colorado. “But veterans, who number more than 400,000 in Colorado, are still subject to triple-digit interest rates, even as too many of them struggle to regain their financial footing after they transition from active duty.”
People in states that once had triple-digit interest rate payday lending report relief after such loans were eliminated, and those jurisdictions save $2.2 billion per year, according to the coalition.
To read the complete report, visit responsiblelending.org.
Contact Sasha Nelson at 970-875-1794 or snelson@CraigDailyPress.com.