Colorado Supreme Court Affirms Payday Lending Initiative Title

Initiative 126 Cleared for Petition Gathering

CoPIRG

The Colorado Supreme Court ruled Friday against the payday lending industry challenge to keep Initiative 126 off the November ballot. Supporters of the measure, including CoPIRG, can now move forward with our effort to ask voters to approve a 36 percent interest rate cap. The average annual percentage rate for payday loans in Colorado is 129 percent with some APRs climbing above 200 percent. That means a Colorado borrower would pay $119 in fees and interest to borrow the average payday loan of $392.

“An average APR of 129 percent is outrageous,” said Danny Katz, Director of CoPIRG. “Payday lenders prey on Coloradans who take out small loans of $500 or less. Fees and interest rates contribute to a 23 percent delinquency rate and a cycle of debt as some borrowers take out subsequent loans to pay off the first one.”

Short-term payday loans of up to $500 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. 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.

Payday loans are currently exempted from Colorado’s 36 percent usury limit allowing payday lenders to charge interest rates that can go above 200 percent. CoPIRG is a member of the Colorado Financial Equity Coalition, a coalition of community, consumer, veterans, and civil rights groups and faith leaders, many of which are working together to move Initiative 126 forward.

“I’m pleased with the Supreme Court’s decision to allow Initiative 126 to move forward. The industry’s attempt to stop us during the initial title setting process has failed,” said Katz.  

A total of 15 states plus D.C. cap payday lending capping rates at 36 percent or less, inclusive of fees. 

“Payday lenders make the dishonest claim that they are simply filling a need,” says Rosemary Lytle, president of the NAACP State Conference. “In fact, payday lending traps people in debt they can’t afford, extending and deepening their financial distress. It is a particular menace for communities of color, who find payday lending stores dotting their neighborhoods much more prevalently than even lower income white neighborhoods. The NAACP has a long history of opposing this financial predation.” 

The Supreme Court decision makes way for the next step in the ballot initiative process. At least 98,492 Colorado citizens must sign their support for the petition, and those signatures must be filed three months before the November election.