On January 4, the administrator of the Colorado Uniform Consumer Credit Code issued a memo providing introductory guidance on alternative charge loans in response to Proposition 111, which amends the state’s Deferred Deposit Loan Act (DDLA) and takes effect February 1. (See previous InfoBytes coverage here.) Among other things, Proposition 111 reduces the maximum annual percentage rate that may be charged on deferred deposits or payday loans to 36 percent, eliminates an alternative APR formula based on loan amount, prohibits lenders from charging origination and monthly maintenance fees, and amends the definition of an unfair or deceptive practice.
The memo—issued in response to creditors currently offering loans under the DDLA who have expressed an interest in offering loans imposing the alternative charges allowed by Colo. Rev. Stat. § 5-2-214—explains that such alternative charges may only be charged if (i) the financed amount is $1000 or less; (ii) the minimum loan term is at least 90 days but no more than 12 months; (iii) installment payments are scheduled in substantially equal periodic intervals; (iv) Truth-In-Lending disclosures show the loan is unsecured; (v) a creditor has not taken any collateral as security for the loan, including a post-dated check or certain ACH authorization; (vi) an ACH agreement reached with a consumer is voluntary and not required by the loan; and (vii) the loan has not been refinanced more than three times in one year.