>$300 = 20$ + 7.5% of any excessive amount
Payday lending is legal in Colorado.
Colorado imposes a $500 amount limit on payday loans offered in the state. The amount of all outstanding loans of a borrower should not exceed $500 at one given time. Payday loans can be taken for the period starting from 180 days and longer. The maximum finance charge is 20% for loans up to $300 (+ 7.5% for each additional $100), allowed APR is 45%, real APR is 214%*. The interest rate for rollovers is 45%. There is an allowed $25 NSF fee; criminal actions in all cases are prohibited.
Colorado used to have very lenient terms for payday lending. They had one unsuccessful attempt to introduce better regulations to the industry in 2007 and then a more successful one in 2010. However, up until this year more or less the same situation stayed in the payday loan sector for years.
As of February 1, 2019, the new law came into effect. It didn’t make payday loan practice illegal, however, from now on all lenders wishing to operate in the state are required to comply with 36% APR cap. Such a restrictive measure is likely to be the beginning of the end of the
Colorado Payday Lending Statutes
It is regulated by the corresponding laws such as Article 3.1 (Deferred Deposit Loan Act) of Title 5 (Consumer Credit Code) in Colo. Rev. Stat. 5-3.1-101 et seq.
In the state of Colorado payday loans are officially called “deferred deposit loans“.
Loan Amount in Colorado
- In the state of Colorado, a consumer is allowed to take several loans (there is no set limit) but the outstanding loan amount should not exceed $500 and there should be a cooling-off period of 30 days between loans.
- The maximum amount is $500 (total) that can be given for no shorter than for 6 months.
Rates, fees and other charges in Colorado
- Not more than 20% can be charged for any payday loan up to $300.
- In case the loan amount is larger than $300, an extra 7.5% is added as a finance charge for every $100.
- 45% APR is allowed for each deferred deposit loan or payday loan.
- A lender can also charge a monthly maintenance fee for each outstanding deferred deposit loan in the amount not more than $7.50 per $100 loaned, up to $30 per month
. Thereis a 45% interest rate for renewals and the number of loans is not limited if their total is less than $500.
Real APR for payday loans in Colorado can reach 214% (*According to the Center for Responsible Lending 2019: “Typical APR based on average rate for a $300 loan advertised by largest payday chains or as determined by state regulator, where applicable.”).
Maximum term for a payday in Colorado
- “There shall be no maximum loan term.
- The minimum loan term shall be six months from the loan transaction date.” (Colo. Rev. Stat. 5-3.1-101 et seq.)
- According to the state law, one NSF collection fee not exceeding $25 can be charged.
- In case the loan is not repaid, the amount of the loan plus attorney fees can be recovered through the court trial. However, a collection agency is not allowed to file any actions against a borrower apart from the cases when the checking account of a borrower was closed before the repayment was done.
One more limitation stated by the Colorado state law is the prohibition on splitting the loan into two parts. Such a practice generally allows lending companies getting great profits by charging interest from both parts of the loans and therefore withdrawing more money from a borrower.
More information about payday loan laws and regulations in Colorado can be found on the official website of the Office of the Attorney General.
The History of Payday Loans in Colorado
- 2000s – Payday lending was legal in the state and lenders could charge high-interest rates.
- 2006 – The Military Lending Act effectively capped payday loans offered to the military at 36% APR. This federal law has no exceptions, thus, no lender in Colorado is now allowed to offer loans to the military at the excess of 36% APR.
- 2007 – The law that attempted to reform the payday lending industry was made, however, that attempt failed. Lenders continued to make lump-sum high-cost loans but were then required to offer an installment plan as well. Yet, in all aspects, the reform was unsuccessful.
- 2010 – Colorado enacted new legislation that required all loans to be repaid at lower rates by introducing affordable installment payments as a must.
- June 2, 2016 – The Consumer Financial Protection Bureau (CFPB) proposed a Payday Loan Rule that hasn’t yet fully come into effect (expected in November 2020).
- And while the fate of the federal regulation is still unclear, the state took their own measures meanwhile.
- November 6, 2018 – Colorado Legislature approved a ballot initiative, which is officially referred to as Proposition 111. It amends Colorado’s Deferred Deposit Loan Act and reduces deferred deposit loans interest rates and fees to 36%. Also, the Preposition 111 puts a stop to any alternative APRs, origination and/or monthly maintenance fees, and has other provisions with regard to payday loans. The measure took effect February 1, 2019.
- The new law doesn’t exactly outlaw payday lenders, however, the cap it places is very likely to drive most of them away from the state as such terms render the business entirely unprofitable.
(As of April 2019)