Colorado voters approve 36% interest cap on payday loans

Colorado voters overwhelmingly approved a ballot measure to cap interest rates on payday loans at 36%.

The passage of Proposition 111, which also prohibits payday lenders from adding origination and monthly maintenance fees, makes Colorado the fifth state to impose caps on payday loans through a voter referendum.

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In 2010, Colorado legislators passed a law banning payday lenders from offering installment loans of under six months and allowing borrowers to pay off their loan at any point in that six-month period without a penalty. That law was intended to strike a compromise between the payday lending industry and consumer advocates, who wanted a 36% interest cap.

Before passing that measure, the state had estimated that average annual percentage rates on payday loans ranged from 340% to 400%. Within two years, the number of payday loans made in the state fell dramatically and more than half the state’s payday lending stores closed.

Yet consumer advocates have said that average APRs on payday loans made in the state could still legally exceed 200% after accounting for fees and that APRs averaged 129% in 2016.

Proposition 111 passed with more than 75% of the vote. The Center for Responsible Lending said it would save Colorado borrowers approximately $50 million a year in fees.

“Those who are on the ground understand the harm that triple-digit loans cause struggling families, and they made sure those stories were heard,” Ellen Harnick, director of the Center for Responsible Lending's western office, said in a press release.

South Dakota voters passed a similar measure in 2016, imposing a 36% interest cap on payday, installment and auto title loans. Within the past decade, interest rate caps have also taken effect in Ohio, Arizona and Montana.