By an overwhelming vote (approximately 1,4270,000 million to 433,000), Colorado voters passed Proposition 111, a ballot initiative that places a 36 percent APR cap on payday loans.  The question presented to voters was:

Shall there be an amendment to the Colorado Revised Statutes concerning limitations on payday lenders, and, in connection therewith, reducing allowable charges on payday loans to an annual percentage rate of no more than thirty-six percent?

As described on the Colorado Secretary of State’s website, Proposition 111 “would restrict the charges on payday loans to a yearly rate of 36 percent and would eliminate all other finance charges and fees associated with payday lending.”

Colorado’s Attorney General has indicated that at least half of all retail lenders closed their doors following the enactment of legislation in 2010 that restricted payday loan fees to an average APR of about 120%.  We suspect that Proposition 111 will have a similar effect, with only the most efficient operators remaining that can rely on sheer volume, sophisticated underwriting, and other product structures available under the Colorado Consumer Credit Code.

According to American Banker, the passage of Proposition 111 makes Colorado the fifth state to impose rate caps on payday loans through a voter referendum.  The other states to have done so are South Dakota, Ohio, Arizona, and Montana.