While Feds Loosen Payday Loan Regulations, Colorado Voters Could Clamp DownAugust 30, 2018
As the federal government walks back historic regulations on payday lending, Colorado voters this fall will be asked to tighten them — a sign that strong consumer protections are increasingly being left to the states.
Short-term loans, often called payday loans because they’re due on the borrower’s next payday, have average interest rates of 129 percent in Colorado. Nationally, rates average between 150 percent and more than 600 percent a year. A ballot proposal, which was certified as Initiative 126 by the secretary of state on Tuesday, would cap those rates at 36 percent. If passed, Colorado would be the 16th state, plus the District of Columbia, to limit payday loan rates.
The ballot initiative comes as new leadership at the Consumer Financial Protection Bureau (CFPB), which was created in response to the predatory lending practices that led to the 2007 subprime mortgage crisis, has been dialing back regulations on the lending industry. Earlier this year, CFPB Interim Director Mick Mulvaney, President Trump’s budget director, threatened to revisit a recent rule regulating payday and car title lenders. More recently, the bureau has taken steps to weaken the Military Lending Act, which protects military families from high-interest-rate loans.
Now, two proposals in Congress could exempt some types of payday lenders from state interest rate caps. The bills would allow high-interest-rate loans to be transferred to lenders in other states, even if the latter state has an interest rate cap. Opponents worry that, if passed, the federal legislation would make consumer protections in place at the state level irrelevant.
“States have always played a critical role and been a battleground for consumer protection issues regarding payday…