In its recent report, “Buried in Debt,” the Center for Responsible Lending (CRL) defends Colorado’s interest rate caps by positing that allowing higher-interest loans would harm borrowers. The analysts argue that borrowers in Colorado have adequate access to alternative funding, that these alternatives are preferable to high-interest loans, and that legislators should maintain the current rate caps in order to protect vulnerable consumers from spiraling into more debt.
However, the report misidentifies the fundamental problem. Having thus begun with the wrong premise, it continues in the wrong direction before ultimately reaching the wrong conclusion.
Theory And Practice
In reality, imposing a ceiling on interest rates disincentivizes financial institutions from lending to high-risk customers. Creating this ineffective business model renders the most vulnerable would-be borrowers too risky to service.
This is not just a theoretical presumption, either. Studies of multiple states and countries taking similar action report this outcome, and Colorado itself should know better from an analysis it already completed.
In a study commissioned by the state legislature shortly after it capped rates in 2019, the Financial Health Network (FHN) noted a precipitous drop in the number of lenders issuing installment loans, sometimes called “payday loans.” Initially, the FHN posited this would probably not substantially affect the ability of Colorado residents to acquire such loans, due to the ready availability of online loan sources. However, in November 2025, an appeals court upheld a ruling allowing the legislature to cap out-of-state loans as well.
As of now, the most vulnerable would-be borrowers in Colorado are effectively shut out of the market. Instead of paying a high toll to cross the bridge back to secure financial ground, they find no bridge exists.
That Which Is Not Seen
The CRL analysis begins by noting the multiple credit lines being used by many of the 3,372 study subjects filing for bankruptcy. It cites this fact as evidence of ample available credit.
Yet, this argument ignores a relevant figure: the total amount of credit extended. Use of multiple sources typically indicates that borrowers lack access to a larger credit stream. Although the study finds that even borrowers with poor credit scores are offered up to six credit lines, government regulations limit how much each institution can loan.
Furthermore, because only people who manage to secure loans can default on them, the study ignores another relevant figure: the number of people who cannot get any credit. By overlooking what economist Frédéric Bastiat called “that which is not seen,” the study has a gaping blind spot where some of its primary statistics should be. The main victims are invisible in this study methodology.
By imposing rate caps, regulators lower the risk threshold at which loaning money is a wise business move for lenders. When Colorado capped annual percentage rates (APRs) at 36% in 2019, high-risk clients collectively became a sure loss for lenders. Although the former APR average of 129% may sound shocking, the alternative for subprime borrowers is going without loans for even the bare necessities. In addition, because the rates are annual, but these are short-term loans, borrowers are not paying anything close to the full 129%.
Nowhere To Turn
It should be noted that the other alternatives promised are often both problematic and under the same misguided attacks as the short-term loans they are supposed to replace. Overdraft protection, controversial due to fees that are not just high but often unpredictable, saw rate caps instead of transparency legislation under the Biden administration. Once again, people in the most jeopardy had fewer, rather than better, options afforded to them.
Although the Trump administration recently reversed Biden’s overreaching “junk fee” ban, overdraft protection serves a very different purpose than short-term loans and is still not an appropriate substitute. Even at rates far higher than Colorado’s currently legal 36%, short-term loans offer fixed and predictable rates, adding up to much less than overdraft fees in all but very specific circumstances.
Overdraft protection has compounding fees that skyrocket quickly because its purpose is to cover math errors or other accidents, which will be immediately addressed. And again, capping these rates leads to the removal of the overdraft option, not to consumer protection.
Freedom And Accountability
In reality, subprime debt trouble does not result from a lack of government intervention into the free market. Rather, it begins with over-regulation, and it is exacerbated by more regulation.
Adults on both sides of a loan agreement have the right to decide on any arrangement they find acceptable. Then, they have the obligation to fulfill the terms of that agreement. Any government intervention must be limited to enforcing those terms, rather than setting them. The nanny state mentality led to these problems, and leaning into it will only worsen them and thus restrict access to useful lending products for vulnerable Americans.