Colorado Voters Approve Ballot Measure Capping Interest Rates on Short-Term Loans
A majority of Colorado voters supported a ballot measure on Tuesday that would cap interest rates on payday loans at 36 percent and restrict certain lenders from collecting monthly maintenance and origination fees.
This most recent Colorado measure follows a 2010 compromise between consumer advocates and the payday loan industry. The compromise mandated a 6-month minimum loan duration and capped certain fees. Consequently, payday loan volume dropped by about a quarter, causing many who worked in the industry to lose their jobs.
“There’s hardly anyone around anymore,” said a payday store manager in Colorado. [We’re] just trying to keep the people who we have employed for the last 20 years employed.”
Unlike Colorado’s 2010 compromise, this most recent ballot measure will likely eliminate payday lending all-together. According to Pew, “payday loan storefronts are [generally] not found” in states that have 36 percent interest rate caps. Online lenders, on the other hand, can offset job loss by shifting their consumer base to other states.
In addition to payday lenders, borrowers are often negatively impacted as well. Past research shows that borrowers in states that severely restrict access to short-term credit tend to use inferior substitutes, including late bill payments and overdraft fees. Research has also shown that these states often see a spike in bankruptcies and more consumer complaints against lenders.