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Tomorrow, Colorado joins fifteen other states and the District of Columbia in stopping predatory payday lenders from charging Coloradans triple-digit rates to borrow small loans of $500 or less. Starting February 1st, payday loan companies can no longer charge interest and fees that add up to over 200% APR but must abide by Colorado’s usury cap of 36%. The change comes after 77% of voters passed Proposition 111 in November, ending an era of predatory payday lending practices that targeted low-income borrowers, veterans, and communities of color. Coloradans will save an expected $50 million per year in payday loan fees.
“Colorado voters spoke resoundingly. Predatory payday loans that have interest and fees that add up to triple-digit rates are unacceptable and starting tomorrow, they are prohibited. We are here to celebrate this victory for Colorado borrowers and ensure everyone has access to the resources to be successful,” said Danny Katz, CoPIRG Director.
"The enactment of Proposition 111 is a cause for celebration for our entire state -- and especially for communities of color," said Rosemary Lytle, President of the NAACP Colorado State Conference, a member of the Financial Equity Coalition. "Our story collection and the many civic conversations conducted by the NAACP throughout the campaign showed the harm of predatory payday loans and showed how these loans have been a debt trap for too many. We applaud Colorado voters who have moved the residents of our state one step closer to economic justice."
“Proposition 111 was a big win for Colorado's consumers. I am proud to support this important, common-sense protection, and as Attorney General I will always work to protect borrowers from unfair and predatory lending practices,” said Colorado Attorney General Phil Weiser.
The rule change applies to all payday loans made in Colorado—whether made at a store, over the internet, or by phone. This change is the result of the largest win margin of any measure in the last 20 years, garnering bipartisan support and winning in nearly every county.
In recent years, as the harms of payday lending have become apparent, states across the country have enforced usury caps. The triple-digit interest loans are designed to compel repeat borrowing. Lenders gain access to customer’s bank accounts, and when customers find themselves unable to repay the loans and still cover their living expenses, they are often forced into a high-cost cycle of repeat borrowing that makes recovery difficult. Payday lenders target low-income borrowers, military areas, and communities of color, expanding an already wide racial wealth gap.
At the event, advocates highlighted a set of resources that demonstrate Coloradans have access to alternatives that will lead to greater financial health and opportunities, without causing the financial distress characteristic of payday lending. These include small dollar loan options at credit unions, a range of utility assistance programs, food assistance, and financial counseling services, which former borrowers in states that once had payday lending report have been far more beneficial than payday loans. An extensive list of products and services is available at http://financialequity.org/consumer-resources/
Another resource for consumers is the Colorado Attorney General’s Office. The Colorado Attorney General’s Office, through the Administrator of the Uniform Consumer Credit Code, investigates complaints about lenders and creditors, licenses non-bank lenders such as finance companies and payday lenders, and takes appropriate disciplinary or legal action when a creditor violates the law. Consumers can file a complaint at coag.gov/uccc/complaint.
“Implementing Proposition 111 is great a step forward in helping people move towards financial security because it assures that people cannot choose debts with comparatively exorbitant interest rates and fees. There are a number of resources to help people spend their money in line with their personal values, goals and priorities – while providing support as they work to get there,” said Brian Palmeri, Financial Education Program Manager at mpowered.
Colorado’s new payday rules take effect as the Consumer Financial Protection Bureau (CFPB) is planning to gut payday loan protections finalized by the agency’s former leadership, which were supposed to take effect later this year. The CFPB rules would require payday lenders to assess the ability of their customers to afford the loans based on their incomes and expenses, a commonsense principle used by responsible lenders.
The coalition that formed to pass Proposition 111 has two major priorities moving forward. The first is working with the Colorado Attorney General, Governor, and General Assembly to ensure the new 36% rate cap for payday loans is enforced and defeat any attempts to weaken or create loopholes for the industry. The second is to identify additional financial reforms that can be pursued, as part of the Financial Equity Coalition, which fights for economic justice through financial education and policy change.
The Financial Equity Coalition is a collection of public, private, and nonprofit organizations committed to bringing financial security to communities throughout Colorado. Members of the Financial Equity Coalition include CoPIRG (Colorado Public Interest Research Group), Bell Policy Center, NAACP State Conference CO/MT/WY, Interfaith Alliance of Colorado, Small Business Majority, Center for Responsible Lending, mpowered, Operation Hope Denver, United Veterans Committee of Colorado, AARP Colorado and more. More information at http://financialequity.org
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