Lenders and borrowers find way around payday loan reforms in Colorado, research finds

Colorado passed groundbreaking payday loan reforms in 2010 that were established as a national model. But a group that opposes abusive lending tactics says borrowers and companies that issue high-interest loans are increasingly bending the law.

Payday loans – characterized by high interest rates and fees, and short payment terms – are disproportionately granted to those living in low-income neighborhoods and communities of color, and military personnel living in rural areas. paycheck, according to the Colorado attorney general’s office. Many borrowers are trapped in debt cycles when they continue to borrow to make ends meet.

A 2010 state law imposed strict lending rules that limited the amount consumers could borrow, prohibited renewing a loan more than once, and gave borrowers six months to repay. The law greatly reduced the amount of borrowing from payday lenders – dropping it from 1.5 million loans to 444,333 from 2010 to 2011 – and Colorado was hailed as a leader in regulation on an issue that received support bipartite.

But since the regulations, lenders and borrowers have found a way around: rather than renewing a loan, the borrower simply pays off the existing one and withdraws another the same day. These back-to-back transactions accounted for nearly 40% of payday loans in Colorado in 2015, according to Colorado AG office.

A report released Thursday by the Center for Responsible Lending, a nonprofit research and policy group that opposes what it calls predatory lending tactics, points out that the tactic has steadily increased since 2010. Re-borrowing has increased by 12.7% between 2012 and 2015.

“While the (reform) was helpful in some ways, the law was not enough to end the payday loan debt trap in Colorado,” said Ellen Harnick, director of CRL’s Western office at the time. a conference call Thursday.

Colorado consumers paid $ 50 million in fees in 2015, according to the CRL report. And with the increase in back-to-back borrowing, the average borrower took out at least three loans from the same lender during the year. One in four loans is past due or in default.

Payday loans disproportionately affect communities of color, CRL research shows, and companies are actively seeking locations in black and Latino neighborhoods, even controlling for other factors such as income. Majority-majority areas of Colorado are almost twice as likely to have a payday store than other areas, CRL said.

“What they’re really going through is a cycle of loans that drains them of their wealth and chunks of their paychecks,” said Rosemary Lytle, NAACP Colorado, Montana and Wyoming conference chairperson. “We have known for a long time that these inflict particular damage on communities of color. “

Lytle said the preferred target for payday lenders is the diverse military communities – such as outside of Fort Carson in Colorado Springs – because businesses are looking for borrowers who have reliable income but still struggle to make ends meet. .

“Many find it difficult to regain their financial equilibrium once they transition from active military service,” said Leanne Wheeler, second vice-chair of the United Veterans Committee of Colorado. “The claim that these loans are helpful to families is simply not true. “

There were 242 payday lenders in Colorado in 2015, according to the attorney general’s annual report on deferred deposits and payday lenders.

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