Proposition 111, Colorado

A payday loan is a kind of loan granted to an individual without his or her having to pass a credit check. Unlike banks, many payday loan lenders operate on a short-term basis and expect their clients to repay within days. Payday loans are smaller than bank loans. However, they have higher interest rates and are charged with some fees. The price of not paying off on time is higher. Annual percentage rates may exceed 300%, and in some cases they reach 1000%.

Why Accept the Proposition?

Right now, a first-time borrower of up to $300 would be charged about 20%; someone wanting to borrow more than $300% would be charged 7.5%. Also, there was a 30% monthly maintenance fee and additional interest rates.

Colorado Proposition 111 should set a fixed annual interest rate for these short-term loans, limiting it to 36%. The payday loan charges mentioned above are subject to elimination.

Given the growing number of people finding themselves unable to get out of the debt trap, the initiative received a 77% voters’ support in Colorado. It is a state with a large percentage of African and Latin American population, who use payday loans more frequently.

Washington D. C. and other 15 states are going to cap interest rates to 36% too. As of now, the payday loan percentage rates in Colorado average 130%. The highest interest rate that is allowed by the Colorado legislation is 200%. The law will take effect on February 1.

Is it Good or Bad?

Like any change in a law, this one has supporters and opponents. The former say that this law could help many indebted people to get out of the debt trap and lessen the amount of potential victims. In fact, a payday loan looks like an attractive option for people with moderate incomes, who are facing unexpected expenses. Most commonly, these are caused by health issues, car repair, or material damage. People turn to payday lenders because they do not have the sum they need close at hand. Second, lenders do not require clients to submit heaps of documents and are not as hard on people with poor credit histories as banks are. All they need to know is that a client does have a source of income. Finally, the whole procedure takes but a few minutes.

Those who oppose the proposition express worries, because they say it will put most lenders out of business and rob many people of a decent opportunity to solve their financial problems.

Conclusion

As mentioned above, an overwhelming majority of Colorado voters have supported the proposition. Most likely, it is because a large part of the state’s population is made up of people with low incomes, who often overestimate their financial opportunities and eventually find themselves unable to pay off on time. Failure to repay could result in additional fees and penalties, to say nothing of percentages that build up over the principal sum. Inability to properly evaluate a personal budget has gotten lots of Colorado residents in trouble. This has to be the main reason why Proposition 111 has received a massive a support in Colorado.

 

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