The Denver Post has a story about a proposed bill that, if enacted, would limit the interest that payday loan makers could charge. The bill would cap interest at 36%. Borrowers can now get hit with interest rates of up to 300% under a convoluted interest schedule. While taking out a loan for $400 and paying back almost twice that amount sounds like a deal with the devil, I have to wonder what the alternative might be. Without that sudden influx of money, a borrower might not be able to fix the car he needs to get to work. Or he might not be able to buy groceries. On the other hand, lenders could definitely still make money if interest rates were lowered.
Payday loans are called “deferred deposit” loans under Colorado law. With these loans, a borrower writes the lender a post-dated check for the amount of the loan, plus interest. The lender agrees to hold onto the check until its date and pays the borrower the loan amount. The maximum amount a loan be made for is $500. Colorado law requires that a written agreement be signed and that the maximum term for the loan be 40 days. A lender may charge a finance charge for each deferred deposit loan that may not exceed twenty percent of the first three hundred dollars loaned plus seven and one-half percent of any amount loaned in excess of three hundred dollars. A borrower can rescind the contract until 5:00 p.m. the next business day.
And just in case anyone wonders if making payday loans a part of your personal business plan, the written agreement needs to include the following notice:
A DEFERRED DEPOSIT LOAN IS NOT INTENDED TO MEET LONG-TERM FINANCIAL NEEDS.
A DEFERRED DEPOSIT LOAN SHOULD BE USED ONLY TO MEET SHORT-TERM CASH NEEDS.
RENEWING THE DEFERRED DEPOSIT LOAN RATHER THAN PAYING THE DEBT IN FULL WILL REQUIRE ADDITIONAL FINANCE CHARGES.
If you bounce a check to a payday lender, they are going to come after you for the amount of the loan, returned check charges, attorneys fees, and costs. So, be careful about making this kind of deal.
Peter Mullison is a bankruptcy attorney at Colorado Bankruptcy Law Group, LLC. If you are considering Chapter 7 or Chapter 13 personal bankruptcy, schedule your free, confidential bankruptcy consultation with a Colorado bankruptcy attorney today. Our online scheduling system allows you to schedule bankruptcy consultation at a time that is convenient for you.
Colorado Bankruptcy Law Group, LLC is a personal bankruptcy firm serving clients in the greater Denver area.
photo: http://www.flickr.com/photos/ari/ / CC BY-NC-ND 2.0
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Mon, Feb 22, 2010
Consumer Law, Consumer Protection