Colorado Joins Other States in Capping APR

Posted On: August 19, 2010 at 11:16 a.m.

Filed Under: APR colorado payday loan

States across the country have been working to cap interest rates on personal and payday loans. While this may sound like a positive thing for consumers, we have to question what I reported on Tuesday: are these supposedly high rates really put into context? Can the payday loan industry survive on 45 percent rate caps? Here is what Colorado is doing: “Colorado has become the latest state to pass a law capping the APR at which payday lenders are allowed to lend money to customers. Although some states have banned payday lending outright, other states such as Colorado have opted to regulate the industry further, by limiting the APR at which payday lenders are allowed to offer loans to clients, in an effort to protect customers from excessive repayments on these short term loans. [[ads]] Colorado’s latest law has capped the APR at which payday lenders are allowed to lend money at 45 percent, which has prompted many lenders to actually stop doing business in Colorado. Of those lenders who continue to operate in Colorado, the majority have stopped offering customers’ payday loans, instead offering customers “installment loans” of around $500 over a period of 6 months. Although these laws which ban payday loans or at least cap the APR at which a lender is allowed to offer short term loans to clients are designed to protect vulnerable borrowers from unscrupulous lenders, many people fear that these laws will actually have a negative impact on the very same people they are designed to protect” (http://starglobaltribune.com/2010/colorado-passes-new-law-on-payday-loans-and-caps-apr-at-45-percent-968). This is a growing trend. Is it the right thing, or is this putting an important industry out of business?