Your Money: Pew urges payday-loan reform, cites Colo. changes

The Pew Charitable Trusts issued a report last month recommending changes to payday loans nationwide - and showcased Colorado as the way to reform payday lending.

State regulators in 2010 updated laws so borrowers in Colorado now pay an average of just 4 percent of their paychecks to service the loans - down from 36 percent under conventional lump-sum payday loans.

Payday loans in Colorado remain costly. With fees and interest, the average annual percentage rate is 129 percent, and that is down from 319 percent, according to the Pew report, issued Oct. 30.

Under the old law, Colorado borrowers were charged 319 percent annually in interest - meaning someone who got a $500 loan paid back $1,950 after a year. Under the new law, the average annual rate is 129 percent, for a final amount paid back of $580 on a $500 loan.

Twelve million Americans use payday loans every year. On average, a borrower takes out eight loans of $375 each per year and spends $520 on interest. Most borrowers use payday loans to cover ordinary living expenses, not emergencies. So the average borrower is indebted for about five months of the year, the report said.

Calling for action by the Consumer Financial Protection

Bureau and policymakers, Pew recommended that lenders allow borrowers at least six months to repay loans via installment.

Payday lenders have come under scrutiny at the state level, too. Benjamin Lawsky, New York's banking superintendent, is asking banks in his state to "choke off" access, claiming that payday lenders illegally charge annual interest rates above New York's 16 percent civil usury cap.

Some payday lenders include companies claiming affiliation with Native American tribes, exempting the lenders from state laws and complicating the already vast disagreement over licensing requirements.

The confusion has revived calls for an interest cap. According to the Online Lenders Association, a lobbying group, Nathalie Martin, professor at the University of New Mexico School of Law, says a federal usury cap "would clarify everything."

If you borrow using payday loans and become delinquent, beware of callers who pressure you to repay to avoid legal consequences. They are defrauding you.

"Such callers purport to be representatives of the FBI, various law firms, or other legitimate-sounding agencies," said Leon LaRose, certified fraud examiner at LaRosa & Associates in Exton. "If you feel threatened, in addition to not making the payment, call your local police immediately."

The Pew final report is available here: http://www.pewstates.org/research/reports/payday-lending-in-america-policy-solutions-85899513326.

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