Colorado voters approve 36% interest cap on payday loans
Colorado voters overwhelmingly approved a voting measure to cap interest rates on payday loans at 36%.
Passage of Proposition 111, which also prohibits payday lenders from adding monthly set-up and maintenance fees, makes Colorado the fifth state to impose caps on payday loans through an electoral referendum.
In 2010, Colorado lawmakers passed a law prohibiting payday lenders from offering installment loans of less than six months and allowing borrowers to repay their loan at any time during that six-month period without penalty. This law was intended to strike a compromise between the payday lending industry and consumer advocates, who wanted a 36% interest cap.
Before adopting this measure, the state estimated that the average annual percentage rates on payday loans ranged from 340% to 400%. In two years, the number of payday loans made in the state has dropped dramatically and more than half of the state’s payday loan stores have closed.
Still, consumer advocates have said average APRs on payday loans in the state could still legally exceed 200% after factoring in fees and that APRs were on average 129% in 2016.
Proposal 111 was adopted with more than 75% of the votes. The Center for Responsible Lending said it would save Colorado borrowers about $ 50 million per year in fees.
“Those on the ground understand the harm triple-digit loans cause to struggling families, and they’ve made sure these stories are heard,” said Ellen Harnick, director of the Western Office of the Center for Responsible Lending, in a press release.
Voters in South Dakota adopted a similar measure in 2016, placing a 36% interest cap on payday, installment and auto securities loans. Over the past decade, interest rate caps have also come into effect in Ohio, Arizona, and Montana.