Colorado Passes New Law On Payday Loans And Caps APR At 45 Percent

Payday Loans

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.

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.

A significant number of people who regularly take out payday loans have a bad credit history, which makes it virtually impossible to obtain a short term loan through any other method, even in an emergency. If they no longer have the option of a payday loan, most of these individuals will turn to un-regulated online lenders, which are more likely to have astronomical APRs and hidden charges, which will result in more problems for the borrower than they would be likely to encounter when borrowing from a licensed and regulated lender.