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May 31, 2018 09:17 AM UTC

Initiative 126 Launches To Stop Predatory Payday Lending Usury

  • 17 Comments
  • by: Colorado Pols

A press release from a coalition of groups who launched a ballot initiative campaign to cap interest rates on so-called “payday loans”–a finance product aimed at struggling consumers that frequently traps borrowers in a cycle of unaffordable debt at interest rates that would blow creditworthy consumers away:

A coalition of community, faith, and advocacy organizations have come together to stop predatory payday loans in 2018. They are working to qualify an initiative for the November ballot that would cap payday lending interest rates. Payday lenders are currently exempted from the state usury cap, allowing them to charge over 200% for short-term loans of up to $500.

Payday lenders strip $50 million per year in interest and fees from financially-strapped Coloradans. The average loan lasts 97 days, and some customers take these loans one after another, spending more than half the year in high-cost debt. The average loan of $392 costs customers an average $119 in interest and fees to borrow money for 97 days. With a default rate of 23 percent — almost 1 in 4 loans — many customers face insufficient funds and overdraft fees, collection efforts, and even bankruptcy for a loan that was supposed to help them through a shortfall.

There was a legislative attempt at reforming this industry a few years ago that made a few changes beneficial to borrowers, most importantly changing the terms of payday loans from a two-week full repayment to a six-month plan. Despite this change, consumers continue to be subject to finance terms from payday lenders that result in a loan product of dubious net value just to bridge the gap to the next pre-spent paycheck. Initiative 126 would cap the allowable interest on payday loans at 36%, which most people would still consider to be awfully damn high.

Back when payday lending reform was a major issue in the Colorado legislature leading up to the passage of the 2010 reform legislation, longtime readers will recall this this blog was hit by a large volume of spam posts linking to various payday lending outfits. We were never quite sure if there was a connection between the legislative effort in Colorado to rein in payday loans and the mass spamming of our blog, but we resolved in the wake of that episode to enthusiastically support all efforts to regulate these loan sharks into an ethical business model. Or failing that, put them out of their predatory business entirely.

And please, spare us the disingenuous pleas of mercy for the minimum-wage employees of payday lending shops. There are better jobs waiting for all of them in today’s fully-employed economy. The damage done by predatory lending eclipses any value of those low-wage jobs.

Colorado will be just fine without loans that hurt people more than they help them.

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17 thoughts on “Initiative 126 Launches To Stop Predatory Payday Lending Usury”

  1. A good article on the subject here.

    In an effort to protect borrowers, ballot initiative to cap “payday loans” clears legal hurdle

    “They come to our locations because they can get the access to credit that they need,” Fulmer said. He added, “many banks and credit unions don’t offer small loans.”

    But this fast cash comes at a high cost: these lenders, on average, charge borrowers the maximum allowed under Colorado law, according to the Attorney General’s Office. So when the bill comes in, borrowers struggle to pay the money back — or in the case of Johnson, never do; in 2016, Colorado borrowers defaulted on 23 percent of all payday loans taken out that year, according to a 2018 report by the Center for Responsible Lending, a nonprofit research group based in North Carolina.

    This kind of lending practice has roots in the early 20th century when salary buyers would give workers a partial wage payment in exchange for their next paycheck. This type of short-term, single payment loan is now commonly referred to as a payday loan, which has become shorthand for any high-cost deferred deposit loan, even if it can be paid off over months.

  2. As a past user of these loans, I can tell you that the industry fights back by trying to get prospective lendees to sign "protest forms" against the initiatives. These little forms are on the counter, prominently displayed next to the cashier windows.

    "I'll spend my money my way! Stay out of my business! There won't be any payday loans if this initiative goes through…" (my paraphrases on this literature)

    1. I'm guessing Jovan Melton drives around from storefront to storefront gathering all the forms up since the legislature's not in session.

    2. speed limits

      usery limits (I know, I know)

      age limits 

      gasoline taxes

      the Inidana bill to define pi

      I could go on – but your objection is noted – but stoopid
       

      1. Motor fuel taxes make my point.

        The Social Security FRA could have been indexed to longevity.

        The minimum wage could/should have been indexed to CPI.

        At least, I am not a moran as you are.

        pi is  pi

        1. db, you would want payday interest loans indexed to something – what?

          madco's writing poetry, maybe a modified haiku.

          You are out -crypting each other here. I have no idea what either of you just wrote. Translation, please? in prose?

              1. Oh, stop. I was merely noting that davebarnes and madco seemed to be trying to outdo each other in the short, choppy haiku-like epigrams filled with hidden meaning department.

                I could decipher what davebarnes was getting at, but it took some effort. I think madco is advocating for clear cut limits and numbers, while daveb is advocating for flexible "indexes" in legislation.

                I still don't know what db would index payday loan interest rates to – as it is an industry with so many out of control variables – high-poverty working poor clientele, low wage employees, high profit corporations, politicians on the take.

                  Any one of those could serve as an "index", but I personally think that madco has the better point that simplicity, hard and fast numbers probably make for better law. Or more passable and understandable law. Term limits and speed limits, indeed.

                For db's "every new law with funding must be indexed" plan, there would have to be massive consumer education as to what indexing is. Legal / economics math is  not something that is taught much in high school. Our school has a mandatory consumer financial education class, but it isn’t a CDE requirement.

                  1. Speaking of haiku, when do we get a "Trump stinks"sonnet or haiku?

                    Wafting on the air

                    A foul stench of rotten meat

                    Trump tweets the nation.

                    1. Fine job.  I was toying with sponsoring a Trumpku dairy.  I once did a column of Lammku, haiku about Dick Lamm, including

                      Lamm as president.

                      Does that make Kevorkian

                      Surgeon general?

                      -0-

                      Trump is president.

                      The dreams of Lincoln now lie

                      Dead at his feet.

                      -0-

                      Trump hates Canada.

                      The North Country fair is refuge

                      For our lost, best hopes.

                      -0-

                      Trump grabs at pussy

                      And claims to cherish women.

                      What a foul, foul lie.

                      -0-

                      A teacher still fights

                      On Colorado's vast plain

                      For truth, not Trump.

                       

                       

    1. If it's at all possible, join a credit union.  I belong to White Crown and can borrow up to $5,000 at 12 percent with a mouse click.

       

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