Payday loans are small, easy-to-access short-term loans that do not require a credit check. In 2016, about 207,000 individuals in Colorado secured over 414,000 payday loans. These loans totaled over $166 million, and consumers paid an estimated $50 million in loan costs (any combination of fees and interest), with a default rate of 23 percent. The Department of Law licenses and establishes rules for payday lenders and conducts compliance examinations of their loans. The department also investigates and litigates cases involving payday lenders.

Annual percentage rate (APR). The APR is the total loan cost expressed as a yearly rate and includes the interest on the loan amount, origination fees, and monthly maintenance fees. The APR varies on a daily basis and, because of the way maintenance fees are structured in Colorado, tends to increase over the life of the loan. In 2016, the average APR on payday loans in Colorado was 129 percent.

Current payday loan regulations. Colorado law limits payday loans to $500 with a minimum repayment term of six months, no maximum repayment term, and no penalty for early repayment. The law allows lenders to charge an origination fee of up to 20 percent of the first $300 loaned, plus 7.5 percent of any amount in excess of $300. In addition, lenders may charge an interest rate of 45 percent per year per loan and a monthly maintenance fee of $7.50 per $100 loaned, up to a total of $30 per month. If the borrower repays the loan early, the lender must refund a prorated portion of the fees. Current law defines unfair and deceptive trade practices as making loans disguised as personal property sale and leaseback agreements or as a cash rebate.

Changes under the measure. The measure reduces the loan costs on a payday loan to a maximum APR of 36 percent and eliminates the current fee structure. In addition, regardless of whether payday lenders have a physical location in the state, they may not offer higher cost loans via electronic or U.S. mail, the internet, or telemarketing.