New Colorado payday lending laws to go into effect
In the state of Colorado, new laws intended to limit short term cash loans are set to go into effect. In August of this year, Colorado payday loan direct lenders will have the interest rates and repayment terms of their products capped. The bill is stronger than some in the industry had hoped for and weaker than many legislators were pushing for.
Limiting interest rates
The interest rates of personal debt loans in Colorado will now be limited to 45 percent annual interest. Like most pay day advance loan products, the term of the loan is much shorter than a year, but interest rates are often calculated on an annual basis. The current cap on these loans in Colorado is 300 percent annual interest. Legislators were pushing for a 30 percent cap, though lenders pointed out that high administration costs and default rates made offering loans at that rate very difficult.
Extending the term of the loans
Currently, the short term loans offered in Colorado can have terms as short as two weeks. When the new legislation goes into effect in August, that term will be extended. Lenders will be legally required to offer a term no shorter than six months on the loans. Borrowers will also be required to have the flexibility of repaying the loan earlier than the six month term.
Monthly and origination fees
To help ensure that short term loan credit is still available in the state, the new bill allows both monthly and origination fees on these loans. Lenders will be allowed to charge an origination fee of $75, and monthly fees of $7.50 per $100 borrowed, up to $30 maximum.
The debate over payday loans in Colorado
On the Senate floor and in the Governor’s office, the debate over pay day loans has been heavy. Some legislators want to pass even stronger regulations on the quick payday loan industry. The current bill, though, passed with a very slim one-vote majority. In the end, payday loans continue to be a controversial issue, and the state legislature is sure to revisit the issue again.