Colorado - New Payday Lending Reform

Tuesday. Thanks to House Bill 1351 Ritter signed into law, current short-term, high-interest payday loans will be replaced by 'softer' up to 12 month term loan. The Loan Reform also allows for interest rates cut.

New government bill has a number of provisions, including: a minimum term of repayment being six months, early repayment meaning no penalty for the borrower and interest rate being no more than 45 percent. However, fees could still push borrowing charges to more than 100 percent of the value of the original loan.

The bill is Aug. 11 effective, but loans obtained under the present system will still be rulled in accordance with the old law until next year.

Debt Circle

The accessibility and availability of the short-term, high-interest online payday loans resulted in many borrowers incurring debts in their attempts to pay back the due amount; they have to take out a new loan to cover the old one. This process, given to high-interest loans being widespread in the market, may never end.

That's why the reform made is very essential for 'cycle borrowers'.

Rep. Mark Ferrandino, D-Denver, the sponsor, who has been trying to make amendments to  the instant payday loans no faxing lending industry since he entered the Legislature in 2007, believe that "this bill will help borrowers end the cycle of debt."

Ritter believes that the new law sends "a powerful message that we will not tolerate exorbitant abuses of so-called cash until payday loans."

Consequences For Lenders

The adoption of the new bill may result in 50% of the payday lending companies in Colorado closing, says Ron Rockvam, president of the Colorado Financial Service Centers Association, adding that six lending business already closed over the weekend in the Denver area."

The reason is simple: changes in HB 1351 require payday businesses to have a higher cash flow because of the extended repayment schedule. Rockvam, who is in loan lending business in Fort Collins, does not know whether he will be able to stay afloat.

At present, payday loans are to be paid back in two, maximum three weeks, with the annual interest rates being as high as 400 percent.