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Payday Loan Companies Near Me – In this Friday, Feb. 17, 2017, photo, an unidentified person leaves the EZ Money Check Cashing store in Omaha, Neb.
On Friday, Colorado will severely limit how much interest payday loan businesses can charge consumers — which could force them all to close.
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Colorado and 34 other states allow people to take out payday loans. They are often marketed as a quick and easy way to get money for things like rent or paying bills or paying for other emergency expenses. Very high interest rates often trap people in a repayment cycle. Colorado law changed in 2010 to limit how lenders can operate, but high interest rates have remained.
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The average annual percentage rate of loans was 129 percent. In 2016, more than 200,000 people took out these loans in Colorado, with more than $166 million lent. Everything will change on Friday.
The new law does not outlaw lenders, but limits how much interest they can charge to 36 percent.
Alex Horowitz, a senior fellow at the nonpartisan Pew Charitable Trusts, said the new law will completely drive out payday lenders.
“There are no payday loan businesses in the 15 other states that have a similar law on the books,” Horowitz said. “There will be no more payday loans in Colorado.”
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Under current law, it costs a consumer about $120 to borrow $400 for three months, he said. Under the new law, it will only cost them about $24.
“That’s not enough for lenders to make a profit, so they stop lending,” Horowitz said. Once they collect any outstanding loans, expect them to close completely shortly after the switch.
So why will it be so hard for payday lenders to stay open? They simply can’t lend enough money — by law, loans are limited to $500 — and they have overhead costs that include storefronts and employees.
“The research is mixed on whether it’s better to eliminate such lending or have it in a heavily regulated market with strong consumer protections, like Colorado had before the ballot initiative,” he said. “Borrowers do things when loans are unavailable, like pawn shops or overdraft their checking accounts.”
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However, not all such loans in the state were outlawed. While auto loans that borrow against the value of your car are illegal in Colorado, pawn shops can still lend money and charge interest. People will still need collateral to take out money from a pawn shop. If people think they can just walk into their bank and get a loan like this, they’re wrong, Horowitz said.
Proposition 111 supporters have a new resource guide for consumers to find cheaper options for borrowing money. The guide includes a list of financial assistance groups and programs that help people who are struggling financially. There are also links to credit unions and examples of credit cards that have lower interest rates than what lenders typically provide.
Going on these days, especially in Colorado. We can help you keep up. The Lookout is a free daily email newsletter with news and events from around Colorado. Register here and see you in the morning! Thanks to the coronavirus pandemic, sales have dried up for many businesses, doors have been closed and employees have been laid off.
But across Illinois, a state law passed earlier this year has led to the closing of hundreds of certain types of stores, including at least one in Evanston. And that’s exactly what many lawmakers and consumer advocates wanted to see happen.
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The companies in question offered payday loans and other short-term, high-interest loans that critics said kept borrowers trapped in a never-ending cycle of debt. These critics say they can’t repay everything, so customers end up borrowing even more.
The term “payday loan” refers to the usual length of the loan, approximately two weeks, which is the time between paychecks for many borrowers. Payday loans require full repayment on the due date plus a loan fee. There are also short-term loans, where the borrower’s title is held as collateral, and short-term installment loans, which allow repayment over a longer period of time than payday loans.
Borrowed amounts are generally a few hundred to several thousand dollars for customers who often have “subprime” credit ratings, making them unlikely to be transacted by a bank.
Kesha Warren of suburban South Holland says she borrowed $1,250 in a car loan to help keep her business afloat, but ended up owing not only the principal but also $4,200 in interest and fees, according to the video. Chicago Community Trust, an organization favoring interest rate caps on such loans.
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Charla Rios, a researcher with the nationwide Center for Responsible Lending, says payday loans and other similar tools “do a lot more harm than good.”
Before Illinois passed the Predatory Lending Prevention Act, payday and other short-term loans could fetch up to 404% APR. The new law caps those rates at 36% APR, in line with similar legislation in 17 other states and the District of Columbia.
According to U.S. News & World Report, 36% is even more than double what someone with bad credit would pay for a car loan, although car loans are usually for much higher loan amounts with longer repayment periods.
In addition to affecting payday and auto loans, the Illinois interest rate cap law also affects installment loans from online lenders.
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A statewide organization representing online lenders says consumers are actually being harmed by the Illinois law, with fewer loan options available to those who may not qualify for money from a bank, savings and loan or credit union.
Andrew Duke, executive director of the Online Lenders Alliance, calls the law “a solution in search of a problem.”
The federal consumer agency, he says, saw only 1% of public complaints about personal loans in 2020.
Lenders also say that focusing on the APR can be misleading because while 300-400% is the APR and may sound extremely high, the actual amount paid for a small loan is relatively low if the loan is paid off on time. For example, before the new Illinois law went into effect, the fee for borrowing $100 for a two-week loan was $15.50.
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However, supporters of the law say that borrowers often cannot meet the due date, the loan is extended and the customer is buried in an ever-increasing amount of debt. Or the customer pays off the loan in time to borrow again a few weeks later.
Brent Adams of the Illinois-based Woodstock Institute, a liberal policy think tank, says borrowers initially feel like they’ll be able to pay back, say, $500 on time.
However, he says, “research shows that the trap is more common than not” because the borrower can’t meet the due date and has to extend the loan “to buy more time with the new fee. The average payday loan borrower,” says Adams, “rolls over the loan a lot”
Duke, of the online lender group, says short-term, low-dollar loans can be a much better alternative to missing bill payments, piling up credit card debt or even filing for bankruptcy.
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He says the interest rate cap in Illinois will force many online lenders out of business there because it would be impossible to turn a profit.
But critics say the high interest rates on such loans can cause exactly the same problems, such as missing more payments or eventually going to bankruptcy court.
More than half of high-interest short-term borrowers earned less than $30,000 a year between 2012 and 2019, according to the state of Illinois. The value of the transaction during that time was almost 7 billion dollars.
While Evanston has a sizable population of all races, it is primarily an affluent community with less appeal for brick-and-mortar payday loan stores, even before the new Illinois law.
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AmeriCash Loans, 1801 Dempster St. concluded several months before the new state law went into effect. (Image on Google Maps from November 2018.)
In fact, nine years ago, the Evanston City Council limited the location of payday loan stores to a handful of commercial areas. Three such stores did not have to move at the time, but any new ones would be limited to a few locations.
There are several financial literacy programs available in Evanston for consumers hoping to learn how to better manage their money, or perhaps the lack of it.
The city plans to resume a program with First Northern Credit Union that was suspended due to the coronavirus pandemic. Local YWCAs also have similar offers, as do Wintrust and Byline banks.
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The interest rate cap law had a dramatic impact on the short-term loan business in Illinois. A state study found that at the end of 2019, 1,578 licensees were offering short-term loans of various types and lengths.
And Evanston, it seems, may no longer have any. A google map search shows that most of the payday loan stores are gone.
And what may have been the last, in 1828 in Dempster, is empty
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