Report: Payday Loans In Colorado Are Cheaper After Reform, But Still Predatory

Aug 7, 2017

Payday loans cost Coloradans more than $50 million in fees in 2015, according to a new report based on data from the attorney general.

And the data also shows that even though changes to payday lending practices in Colorado lowered overall costs for borrowers, people are still stuck in an ongoing cycle of debt.

Ellen Harnick is with the Center for Responsible Lending, who conducted the research report.

She says payday loans are marketed as short term, but in most cases people cannot afford to repay the loan, so they pay it off and take out a new one the same day.

“This is what payday lenders count on,” Harnick says. “They’re looking not for the borrower who’s going to come in, borrow for a few weeks or a month and pay it off and never come back. They’re looking for people who are going to keep renewing these loans, and keep paying on these loans.”

Payday loans are advertised as a short term fix for a financial emergency.

“Let’s say you have a $300 hole in your budget on a particular month,” says Harnick. “You can go to a payday store and without them checking your income against your expenses, or your ability to repay, they will extend a loan—and the rates are high. In Colorado the average rate is about 120 percent APR, and that includes all the interest and fees.”

They’re looking not for the borrower who’s going to come in, borrow for a few weeks or a month, and pay it off and never come back. They’re looking for people who are going to keep renewing these loans, and keep paying on these loans.

She says if someone takes out the average payday loan of $395, they could end up with an additional $365 in fees and interest. Lenders obtain access to a borrower’s bank account when the loan is taken out, so when the payment is due it may be taken directly from the account. Harnick says payday borrowers have higher rates of overdraft and insufficient funds fees from banks because of this.

In 2010 the legislature put some restrictions on the cost of loans and extended repayment terms to 6 months. However, according to Harnick, lenders are still just as predatory.

“We found these lenders tend to concentrate certainly in low and moderate income communities, and disproportionately in communities of color,” she says.

The research report also found that if a black or Latino neighborhood is more affluent than a white one, it’s still more likely to have a payday lending store.