More than a hundred new state laws go into effect on August 11, dealing with everything from clean energy to so-called "smart" government. But one of the most hard-fought reforms is House Bill 1351, which requires the payday loan industry to cap its annual interest rate at 45 percent.
"Any responsible lender would be satisfied with a 45 percent APR cap," declared bill sponsor Rep. Mark Ferrandino (D-Denver).
Really? I suspect Tony Soprano himself would be satisfied with a 45 percent return on his street juice. Heck, even our sadly battered, stuck-with-last-year's-pinstripes bankers in this state are happy with 45 percent; the figure happens to be the legal limit for banks, too.
But if 45 percent sounds a mite steep, you haven't spent much time in your friendly neighborhood predatory lender shop, begging for a $300 advance on your next paycheck so you can fix your car and stay employed. Data compiled in Colorado indicates that the average payday loan here a few years ago collected interest at an annual rate of 485 percent. Operations elsewhere have been known to charge up to 5,000 percent. That's compound interest, goosed by hefty fees that often roll into the loan if the balance isn't paid off entirely within a short period of time.
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SHOW ME HOW
Several states ban payday loan transactions or cap the APR at 36 percent. Canada deems any interest rate above 60 percent to be criminal usury. But here in Suckerville, we've let the industry have its way with folks living on the edge of penury for decades.
The industry howled loudly over HB 1351, predicting tht it would cost hundreds of jobs and penalize the very people it was trying to help, by making quick cash (without credit checks) unavailable to them. It's too early to determine if all those lovely check-cashing stores will simply close their doors (or convert to medical marijuana dispensaries -- most of them are already painted green, aren't they?). But if the alternative is triple-digit interest rates, it's hard to see that as a viable economic model for anybody.
Of course, the credit industry needs payday loan operators in some form -- if nothing else, they make the credit-card folks and their average 12 percent rate seem virtuous.
No mean feat, when you consider the possible triple-digit vig you're paying on late fees if you let that $100 credit card balance slide for a few months.