As About Payday Loan reports, a new House Bill 1351 has recently been signed in Colorado in order to establish limits on annual percentage rates on payday loans. The opponents of this new legislative act state their arguments against it and discuss how this bill will affect both payday lenders and borrowers. The new legislation was adopted at the beginning of the month. The main purpose of it is to ban payday loans and substitute them for installment loans with a due period of 6 months. In its turn, the Community Financial Services Association, the main representative of payday lenders in the USA, informed that the Bill 1351 will negatively influence not only payday loan industry, but also the whole national economy by eliminating the number of payday stores and cutting down near 100 jobs. Undoubtedly, direct online lenders like Cash USA will be affected by the legislative act, and possibly will stop providing their payday loan services in Colorado.
The statistical data show that payday lenders are serving near 300,000 borrowers in the State of Colorado yearly. In response to the changes in regulations of their operations, which have already been strictly monitored before passing the law, lenders are trying to develop new methods of doing business in order to continue their activities on the market. However, some payday lending companies have already closed down and left many employers out of work. A lot of lenders stopped offering loans in advance after they knew through internet payday sources, including payday advance forum, that the new Bill was going to be passed.
The original intention of the Bill was to extend the term of payment of short-term loans and so that to decrease percentage rates on them. But financial experts state their arguments that due to new restrictions lenders in reality will be able to raise interest rates by applying new financial fees. On the other hand, there is no specification of the terms in these arguments. Experts can’t either say exactly if the Bill 1351 will allow or ban these operations with establishing fees. Due to the fact that the annual percentage rates on short-term credit are constantly changing, State legislators and opponents of the payday loans may apply false statistical data in order to distort or conceal real numbers. For instance, the new legislation intends to establish 36% for a payday loan, because “it is obvious” that the rate of 400% is “too high”. However, in practice it is legal to charge $29 for overdraft (the term of the loan is 2 weeks), which finally makes up 755% for the loan. Moreover, such fees are considered to be a standard even if an overdraft doesn’t reach one dollar.
What is more unusual is that under the Bill payday lending companies are required to offer a customer another payday lender, if they can’t provide him with the desired repayment services. There is no other industry, which must keep to such a requirement. For example, it would seem strange, if the restaurant which can’t offer you the desired dish, will recommend you another restaurant that can comply with your request. So that, the provisions of the regulation are at least not fully defined.
As for now, a lot of people engaged in the payday lending industry in Colorado have already become unemployed. The borrowers, who just need couple hundreds dollars while waiting for their next salary, don’t have other options but taking a 6 month installment credit. But what may seem positive is the fact that the articles of the Bill are still being reconsidered by Attorney General. The final voting will be conducted next Tuesday. Hopefully, some amendments to the law will be adopted in favor of both payday lenders and customers.