In recent decades, Colorado has taken strong steps to protect consumers from unsafe, predatory loans. Following the low point of authorizing triple-digit payday loans in 2000, subsequent reforms have established crucial protections on unsecured consumer loans. In 2018, voters passed a ballot initiative to limit nearly all such loans to 36% APR or less, and in 2023, the legislature passed a law to prevent out-of-state banks from evading these limits. Nearly every year, however, a subset of the credit industry argues to the Colorado legislature that this decades-long movement toward greater protections has harmed consumers. The core of their argument is that Colorado’s interest rate ceilings leave a subset of subprime borrowers without adequate access to credit. The prescription, according to these lenders, is to raise allowable interest rates, which they argue will allow them to make riskier loans and deliver credit products to more subprime borrowers.
This report tests that assertion by using a mixed methods analysis to study low-to-moderate income (LMI) Coloradans’ financial circumstances and access to credit products under existing law. Among the sources cited in this report are an analysis of the checking account transactions of Coloradans from SaverLife, a nonprofit financial technology company that works to create prosperity for LMI families; an analysis of 3,372 bankruptcy cases from Colorado’s courts; a review of the most recent data released by the Colorado Attorney General’s Office about lending in the state; long-form interviews with five Colorado consumers; and two focus groups with six Colorado financial coaches and counselors.
Together, they paint a picture that contradicts the industry narrative. In recent years, Coloradans (like all Americans) have experienced sharp increases in the cost of living, creating for many a struggle to afford housing, transportation, and other basic needs. Many Coloradans have turned to credit products to attempt to fill a growing gap between income and expenses, and it is clear that the LMI borrowers studied in this report have numerous credit options available to them for this purpose. Yet the costliest of these credit products have not improved their financial circumstances and in many cases have drained their savings and trapped them in cycles of debt. While this finding is perhaps unsurprising, it does contradict claims commonly made by lenders that seek to target these borrowers with more (and more expensive) credit. As these borrowers’ experiences illustrate, credit products are generally a poor fit for closing a structural gap between income and expenses. Higher-cost credit products would push debt-burdened borrowers further behind.