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Payday loans at 185 percent APR: Reform slashes interest rate, but desperation remains

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Last year, when state lawmakers set about reining in the sky-high interest rates of payday lenders in Colorado, the industry howled and moaned that tighter regulation would cost bunches of jobs. But a new report from the Colorado Attorney General's Office suggests the biggest impact of the reform has been some savings to borrowers -- who are still struggling to pay off the loans in under three months.

According to the AG's count, the number of licensed payday lender locations in the state fell by 19 percent last year, and the number of loans issued dropped by nearly a third. But that still left more than 400 clip joints, issuing or taking over by assignment over a million loans in 2010, worth more than $400 million. Approximately fifteen percent of those loans, valued at about $68 million, ended in default -- a good indication of the high-risk nature of the transactions, which has been used to justify annual interest rates as high as 485 percent.

The good news in the report is that the average contracted annual percentage rate (APR) for the loans now stands at a mere 185 percent, compared to 326 percent in 2009. The bad news is that borrowers are taking much longer to pay back the average loan, so the financial cost of the transaction remains roughly the same. Prior to the new law taking effect, the average payday loan customer borrowed $369 for a contracted eighteen-day loan term and had to cough up $60 in charges. The customers are still borrowing approximately the same amount but contracting for much longer loan terms -- and paying off the loan, on average, 63 days later, which ends up costing around $60, too.

The full report is worth checking out for, among other things, the glimpse it provides of the thousands of financially strapped people in the state living from loan to loan. The vast majority of the state's 300,000 payday borrowers report that they had fewer than six such loans last year, but almost 50,000 Coloradans took out more than seven. And about 5500 desperate cases had thirteen or more.

In theory, these folks are saving thousands of dollars over what they would have been paying in juice under the old law. In practice, it doesn't appear that many of them are saving anything. They're just buying a little more time.

More from our Follow That Story archive: "A protest at Bank of America demands loan modifications and accountability."

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13 comments
Same Day Loans
Same Day Loans

Payday loan works on the basis that when a person takes out the mortgage it is returned on their next payday advance. So most loans are between 1 to 30 days in length and the amount borrowed and the charge (Interest) is instantly taken from the individuals account on the decided payday advance date.

Payday Loans Online
Payday Loans Online

 Payday loans for poor credit score assist the workers to clear their previous debts for which they are called as the poor credit score. It meets your financial needs for which you can make an absence of loss in future. The rates on this contract are normally high. But, this is not the issue here. There is least procedure involved in this process. As a result, the distribution of documents is not given much importance.

Payday Loan
Payday Loan

With this quickest way of acquiring cash this online cash advance bank providers have greatly sufficed the needs of people who are in immediate need of cash. There are hundreds who are looking to use the services of cash advance bank providers. Useless to say it is an ideal choice for those who are in need of cash. 

Merlin09
Merlin09

Payday loans require very little for approval which means that almost anybody can qualify for a loan. They only ask for very basic requirements which almost everybody has. You just need to have a job and present your latest pay slip as proof of your income. Pay day Loans

short term loans
short term loans

If you need money urgently lending is one of the things that you can count on, it's indeed a big help in emergency financial needs but just put limit to it and save money for future use to avoid problem in paying debt.

Loans
Loans

a good reformation of loans for the benefit of others and in order for them to satisfy the good things that this loans company  can provide.

women shoes
women shoes

I am so glad I got out from under my 'payday loans.' NC didn't shut them down so much as make them nearly impossible to get.... in 2002

Plutorobot
Plutorobot

Gotta take the contrarian view here. If people pay back loans at a 326% interest rate in 18 days and 185% in 63 days and that roughly works out to be the same, doesn't that mean that people are choosing how much they are willing to pay to have the money now? Taking the example in the article, aren't people saying that are willing to pay $60 for the money advance and would rather take more time to pay that $60 than pay less money overall when give the choice?

Its very easy to dismiss these payday loans awful terms because you wouldn't use them yourself, but maybe you just aren't in a situation where it makes sense for you, so you don't see the value.

If you insist that charity should offer low to zero interest loans to those in need then you put up your money and find all the people you can to put up their money and offer these loans. If you can't get enough money together to satisfy the demands of everyone's loans then ask yourself if its better that these people have the loans available or no loans at all. Their choice to take the loans shows us what choice these people have made for themselves.

Personally, I choose to give to http://www.kiva.org/ because they offer low interest loans to the most needy in the world. However, I don't pretend that Kiva will satisfy all of the demands for all loans, so I'm personally glad that payday loans exist for those who need them.

dewalt sale
dewalt sale

I am so glad I got out from under my 'payday loans.' NC didn't shut them down so much as make them nearly impossible to get.... in 2002

Robert Chase
Robert Chase

How is it that "the average contracted annual percentage rate (APR) for the loans now stands at a mere 185 percent"?  HB10-1351 capped interest rates at forty-five percent (45%) APR (raised from a mere 36% due to some of that howling to which you referred).  The bill allows for various fees, but the report asserts that payday lenders are contracting for interest rates more than quadruple the legal limit.  If this is the case, what is Suthers doing to stop it?  HB10-1351 makes violations unfair and deceptive practices under C.R.S. 5-3.1-121.  How many payday lenders are being prosecuted?

Your conclusion that payday lenders are still gouging borrowers but taking longer to do so may be correct, but it is a very much weaker one than mine, which is that it would appear that payday lenders are engaging in the wholesale violation of the Law by charging borrowers over four times the legal limit.

Guest
Guest

185% interest on a loan or on credit is like being raped with a molten hot jack hammer: you die of shock even before the pain and the injury starts.

AlanPrendergast
AlanPrendergast

Robert, Good point. From my reading of the report, I gather that the discrepancy in APR has to do with the law capping at 45 percent not going into effect until August 2010, so the data collected in the first seven months of the year helps to skew the average interest rate.

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