Does the pay day loan bill solve the problem?
The Colorado House had approved the pay day loan bill, HR 1351, but the hard work is ahead to get it past the whole legislature and signed by the governor. The bill would cap the interest rate at 45% annually and set a $10 limit on each $100 in fees.
The interest rates above 300% were appalling, but the real problem with the pay day shops have been the trap that borrowers get into with the pay day loan. A pay day loan in the short-term asks for complete repayment of the principle all-at-once. Unable to pay off the entire loan and fees, most people get in a cycle of “rolling over,” or repaying the loan fees every two weeks.
The pay-day style loan does not allow someone to pay off any of the principle. The Colorado legislation is said to save the consumer $614 in fees on a loan of $500 that is repaid in 4 and a half months, but in the pay-day style, the borrower will still have to pay the entire balance at once. The trap is still evident in this legislation, by capping the interest a 45% and fees at 10%, pay day loans will be more affordable, but they still require the borrower to pay the whole loan off at once.