According to About Payday Loan, recently in Colorado, House Bill 1351 was passed in an attempt to limit APR’s for payday loans in Colorado, but critics from both sides are now questioning the true implications of HB 1351 for both consumers and payday lenders. The new law, which went into effect earlier this month, was meant to eliminate payday loans and replace them with a 6 month installment loan instead. The Community Financial Services Association, which represents the payday lending industry in America, stated that the new bill will result in “the closing of dozens of payday loan stores and the loss of at least 100 full-time jobs” and will also affect direct internet lenders such as Cash USA possibly causing them to no longer continue to offer loans in the State of Colorado.

Those in the payday lending industry, which reportedly lends to 300,000 customers a year in Colorado alone, are attempting to create a business model that may indeed allow them to survive amidst these drastic regulatory changes to their already transparent financial product, several payday loan storefronts have shut their doors leaving many seeking employment. Many lenders preemptively closed down knowing only of HB-1351 via payday loan news sources such as the payday advance forum.

Despite the original intent to lengthen the required term of these small loans in order to cut down APR’s, new studies argue that within the limits of the new laws would actually allow lenders to increase APR’s with the new 6 month loan, by use of new finance charges. These claims do not, however, seem to specify exactly what terms are being compared to come to this conclusion, nor do they specify what provisions of HB-1351 actually restrict or allow these practices. And because APR’s by nature can vary greatly on short term loans, this may be yet another attempt by regulators and those opposed to the payday lending industry to use deceptive APR statistics to “mis-represent” or distort figures. For example, a common claim is that APR’s should be limited to no more that 36%, and that “everyone knows” an APR of 400% is simply “too much”, when in reality a $29 overdraft fee (2 week period) would calculate to an APR of 755%, which is legal and widely accepted as a standard even for overdrafting less than a dollar.

HB-1351 also requires payday lenders to refer customers to another lender if they do not offer the repayment options that the customer wants, which is a bit alarming to lenders when considering both the rather vague nature of the regulation, and the fact that seemingly no other industry is required to adhere to such a policy. If a restaurant cannot prepare your favorite meal, you are certainly not guaranteed by law a referral to a restaurant that can cater to your request.

In any case, many payday lending jobs in Colorado have already been lost, and consumers that only need a little cash until payday will now only be able to select a 6 month loan. And although this may not seem to make sense, it is intended to “protect” consumers in Colorado. At least the details of this bill are still currently being drafted by the Attorney General’s office, and a final hearing is scheduled for next Tuesday. Perhaps both lenders and consumers will see some positive changes at that time.