Raise your hand if you feel it’s unfair for working class folks to get sucked into a cycle of financial woe because they borrowed against their future paychecks at rates that can hover into the triple digits?

Or how about this: Raise your hand if you feel it’s unfair that a business operating within Colorado’s law should wake up one day to find that the rules have changed and it’s no longer profitable to loan money to people who really seem to need it?

These are the emotional appeals made by opposing sides of Proposition 111, which asks voters to limit interest rates on payday loans. A simple majority will reduce the total cost of the loan to a 36 annual percentage rate. But that, say opponents, would drive businesses out of the state.

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Currently, the interest rate is limited to 45 percent, but with add-on fees, the APR can be as high as 180 percent, according to the non-partisan Legislative Council of the Colorado General Assembly.

This battle has surfaced in Colorado before.

Back in 2010, state legislators passed a law to limit payday lenders to a 45 percent interest rate, after reports showed that the total cost often loomed in excess of 500 percent APR, according to the Center for Responsible Lending. The new law was widely praised and even held up as a national model by The Pew Charitable Trusts.

But even as the 2010 law prevented balloon payments and capped rates, it has allowed for additional fees over the life of the loan. A $500 loan, for example, can cost an additional $290 over six months, according to a the state’s attorney general.

As it turns out, lenders and borrowers are making or spending a lot of money on such loans today. These short-term, installment loan businesses made 414,000 payday loans in 2016, lending out $166 million in the process, according to the Legislative Council. Borrowers coughed up another $50 million in interest and fees, though not all were paid back. The default rate was 23 percent.

Taking all the fees and interest into account, the annual percentage rate on payday loans in Colorado was 129 percent in 2016 — though it could be as high as 180 percent.

And that’s not good enough for advocates pushing to pass Proposition 111.

“You can imagine that a person borrowing $400 is having trouble making ends meet, and that’s why they go to a payday lender,” said Corrine Fowler, campaign manager for Coloradans to Stop Predatory Payday Loans, which recently organized a protest in front of the ACE Cash Express on Denver’s 16th Street Mall. “…It’s a debt trap, and we believe payday lenders should have to follow the state usury law, which is 36 percent.”

Employees at the ACE Cash referred questions to the company’s corporate office in Texas. The company did not respond.

To take out a payday loan, a borrower must have a job and a bank account. Lenders loan up to $500, and payments can come straight out of future paychecks. Users have a minimum of six months to pay back the loan.

While the number of loans and lenders has declined since 2010, data shows that such loans are still used. Approximately 207,000 Coloradans took out a short-term loan in 2016.

Without payday loan options, desperate consumers would turn to riskier and potentially more costly alternatives, such as bounced checks, late payment fees, disconnected utilities or unregulated loans, said Ed D’Alessio, Executive Director of the Financial Service Centers of America, a national trade group that represents short-term lenders.

“We believe state law should reflect a balance — a balance of access to credit and consumer protection,” D’Alessio said. “Thirty-six percent is proven to be an elimination of the product. You can’t make small, unsecured loans to borrowers that present some level of credit risk with a return that small.”

Fowler said she worked on the 2010 campaign and pushed for a 36 percent cap back then. But by the time the bill became law, the cap was 45 percent and extra fees were allowed. This time, advocates decided to go to voters, much like South Dakota did in 2016 to limit annual interest rates to 36 percent. (And 15 months later, the number of payday loan stores had dwindled to a few dozen, from about 440, resulting in a report by independent news organization South Dakota News Watch, calling the local payday loan industry “nearly extinct.”)

“I honestly would like to see payday lenders not provide a lending product that is irresponsible,” Fowler added. “If they can operate under a responsible interest rate, maybe there is a place for them in our community. North Carolina banned payday lenders altogether. We’re just trying to be reasonable. We just ask the industry to follow the same rules as other lenders.”

After the state’s payday loan law went into effect in 2010, analysts with the Pew Charitable Trust studied the impact of the new regulations. It found that the amount loaned declined, as did the defaults per borrower. And while the number of payday lending stores was halved three years after the law went into effect, the number of borrowers fell only 7 percent.

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“Some of them simply stopped needing a loan because they got out of debt, or they chose other options like using a pawn shop or borrowing from family and friends,” said Nick Bourke, Pew’s director of consumer finance, who worked on the project. “But a decline of 7 percent means the vast majority who wanted a loan before the law changed are (still using payday loans) but they paying 42 percent less than they were under the old terms and were being more successful.”

As Bourke said in the past, Colorado’s 2010 law is a nationwide model — if the goal is to find the balance between letting short-term loan businesses exist while offering risky consumers a credit option. But if the goal is to eliminate payday lenders, then a 36 percent cap would do that effectively, he said.

“At 36 percent, there will not be payday loans in Colorado,” he said. “Colorado’s 2010 payday loan law is absolutely a model for any state that wants safe, low-installment loans available to people with low credit. … There’s really just a simple choice that voters in Colorado are being faced with: Should we have this type of small-dollar installment lending or should we not?”

An ACE Cash Express branch in Denver’s Baker neighborhood, pictures on Sunday, Oct. 21, 2018. ACE provides payday loans. (Jesse Paul, The Colorado Sun)

The bulk of the money for the campaign is coming from The Sixteen Thirty Fund, a liberal nonprofit that is active in a range of campaign in Colorado and nationally this year. That group donated all but $48,000 of the $1.6 million raised by Coloradans to Stop Predatory Payday Loans.

Most of that money was spent gathering petition signatures. Through the end of September, the group had yet to report spending on mailers or other advertising.

Colorado Springs resident and former state Rep. Douglas Bruce, the author of the Taxpayer Bill of Rights and a convicted tax evader, formed the State Ballot Issue Committee to oppose Proposition 111 and several other ballot measures.

The group hasn’t reported raising or spending any money.

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