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Oregon puts an end to Payday Lending

Posted by Stephen on June 8, 2007

By BILL GRAVES

The Legislature eradicated triple-digit interest rates on consumer loans in Oregon with a vote Wednesday that payday and car title lenders say will seal their demise. The Senate voted 18-11 in favor of a bill that caps interest rates on all consumer loans under $50,000 at 30 percentage points above the Federal Reserve discount rate, now at 6.25 percent.

The action reinstates a usury law in Oregon and completes approval of a package of bills requested by Gov. Ted Kulongoski to protect consumers from the high interest rates charged by short-term lenders.

Oregon payday lenders charge an average annualized rate of 528 percent on loans, which are typically for about $300 over two weeks.

The legislation, which takes effect July 1, transforms Oregon from one of the most payday friendly states in the nation to one of the most strictly regulated — with the exception of 10 states that effectively ban payday lending. Oregon scrapped its former usury law in 1981 during a recession when inflation and interest rates skyrocketed.

House Speaker Jeff Merkley, D-Portland, who sponsored House Bill 2871, called it the most significant consumer bill in the last decade. The Oregon payday loan industry, which made 841,000 loans worth $278million in 2005, is squeezing millions of dollars from working families with its high interest rates, he said.

“Thousands and thousands of Oregonians will still get the short-term loans they need,” he said, “but they will get them under 36 percent. . . . It will be a huge, huge improvement for the quality of life of Oregon families.”

The bill goes back to the House, which had already approved it, for a vote on a minor amendment before it goes to Kulongoski, who said he will sign it.  The legislation will knock out all but about 20 of the 333 payday lending stores in Oregon, said Steven Hanson, president of Oak Brook Financial Corp., which operates 41 payday loan stores in Oregon.

“These politicians don’t care about the small Oregon business owners and their employees who are going to be on the street,” he said. “They ought to care about the consumers.”

The Legislature passed a bill last year — which hasn’t taken effect yet — that caps short-term payday loans at 36 percent, plus an origination fee of $10 per $100, or $30, whichever is less. The usury bill extends those limits to all consumer lending.

Under the new rules, lenders can charge no more than $13 on a one-month $100 loan — a 67 percent drop from what they typically charge now.

Consumer advocates, religious leaders, the AARP of Oregon, food bank operators, various city councils and others have argued that regulations are needed to prevent lenders from trapping vulnerable low-income Oregonians in vicious cycles of debt.

Dena Speer, 59, of Southeast Portland, said she was glad to see the Legislature crack down on payday lending after her bitter struggle with payday loans three years ago.  “The people of Oregon can change things that are not good for us,” she said. “It is a wonderful victory and a wonderful message.”

She and her husband, Michael Speer, 45, took out seven payday loans totaling $2,277 to avoid eviction from their apartment and then sank into debt, eventually owing lenders about $8,000.

They declared bankruptcy and their marriage dissolved. Since then, they have remarried. Dena graduated from Western Culinary Institute in Portland and now works part time in a thrift shop and as a volunteer cooking meals for the homeless. Recently, she took out a 90-day loan for $450 from Unitus Community Credit Union, which charges 18.5 percent annual interest.

“You come in with your pay stubs, identification and personal references — the same criteria payday loans have,” she said. “We have one more payment to make, and that is paid off. It was quite easy.”

The new regulations on payday lending pose a double-edged sword for problem gamblers who sometimes turn to payday lenders for cash, said Marcia Mattoso, a gambling counselor and outreach coordinator for Cascadia Behavioral Healthcare, a Portland nonprofit. Lower rates will make the loans more attractive to gamblers, she said, but if some lenders close, the ready cash will be less available.

Oregon has struck a fair balance for the payday loan industry, said Angela Martin, economic fairness director of Our Oregon, a progressive nonprofit group in Portland. “Oregon is setting fair rules of the game without saying the game is over,” she said.

But lenders say the game probably is over except for stores that can supplement their payday loans with robust check cashing businesses, which also face new regulations under one of the governor’s bills.

Moneytree Inc., a Seattle-based payday lending business with 125 stores in five Western states, closed the one store it had opened in Oregon because of the upcoming legislation, said Mark Thomson, spokesman for the company. He said Oregon’s legislation will “remove some choices from the marketplace for consumers, and I don’t think that is ever a good thing. And I think it will eliminate some jobs.”

Fifty-eight payday stores have closed in Oregon in the last year, 30 of them since January, said Charles Donald, supervising examiner at the state Department of Consumer and Business Services. That leaves 333 payday stores in Oregon.

During a 40-minute debate over the usury bill on the Senate floor Wednesday, Republican opponents argued that the measure invited legal challenges, distorted market forces and unfairly singled out consumer lenders by not addressing fees charged by banks and credit unions.

“Let the market work,” said Sen. Roger Beyer, R-Molalla.

The payday loan industry emerged in Oregon in the late 1990s and grew rapidly until the Legislature adopted regulations in a special session last year.

Merkley’s bill and four bills requested by Kulongoski made up the package of bills that cap interest rates on all consumer loans, including out-of-state car title and payday lenders who make small loans by mail, telephone or the Internet.

One bill yet to be approved in the Senate would make conventional licenses for longer-term installment loans impractical for payday and car title lenders.

More than 150 payday and car title lenders applied for long-term licenses with hopes of making loans outside the 36 percent interest cap. But the bill passed Wednesday closed that option.

Bill Graves is a writer for the Oregonian.

Opinions expressed by writers do not necessarily represent those of management of Conservative Viewpoints.

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2 Responses to “Oregon puts an end to Payday Lending”

  1. K.L. Lewis said

    Payday Loans fill an important niche.

    It seems to me that the people that have the biggest problem with Payday loans, probably have never been in a position where they needed one. I bet most have never even had to consider it. As a person that has been unable to work because of a case of terminal cancer and forced to live on a very small disability check, Payday loans have saved me on more than one occasion. Most people that have average credit, have the ability to borrow small amounts of money without any trouble. If they don’t have the money in savings, credit card companies send offers regularly, most pre-approved. Small signature loans are also an option. But what if these options are not available to you? I have developed credit problems because Medicare does not pay 100% of my medical bills and I have been unable to keep up with the balance for years now. I cannot get a credit card or a small signature loan whenever I am in a jam. Fortunately, I have had the option of a Payday loan to cover everything from prescriptions to rent. Without this option, there surely would have been cases where I would have had to go without prescriptions or worse, faced eviction and found myself homeless. If this option is ever taken from me because some legislator that knows nothing about NEEDING a payday loan, decides to gang up on the Payday loan industry, myself and others like me will have no place to turn and the results will be devastating. What if the 36% cap drives away the Payday Loan businesses? Do you really think they will stay in Oregon and make very small 36% loans? To a group of people that I’m sure have a higher than normal default rate. (Remember, if we had good credit, we wouldn’t need a Payday loan in the first place.) To drive off or do away with Payday loans would be a great disservice to people like me without anyplace else to turn.

  2. I don’t know of anyone that has a bigger problem with the predatory practices of payday lending’s exploitive nature than I have…and I have been in a position to need one….and I was a manager of a payday lender…and I witnessed first hand the devastating effect of the ridiculous usery practices that exist simply because they have been able to foster cover within loop holes in the law.

    Thankfully, Oregon has provided another example of a state that sees the need to protect the free market from itself while looking out for citizens that are clearly vulnerable to the practices of the money machine known as payday lending.

    You said “I have had the option of a Payday loan to cover everything from prescriptions to rent.” That’s just to funny…

    First of all, I think you are an industry hack….maybe I’m wrong and if I am than you have bought the industry cool aid; either way, the notion that payday loans will help someone with prescriptions and rent is an age old industry argument that is manipulative, false, and dangerous for anyone to buy into. That’s the old argument that they taught managers during training and it is a terrible thing to share.

    Anyone that attempts to cover things they already can’t pay for, that are monthly expenses, should NEVER take a payday loan to cover it because that my friends IS the trap that has made payday lenders billions of dollars while sending customers into bankruptcy. This type of industry backed myth is unethical, exploitive, and border line criminal.

    You asked “What if the 36% cap drives away the Payday Loan businesses? Do you really think they will stay in Oregon and make very small 36% loans?” I SURE HOPE NOT!!

    Unfortunately you may have missed the part of the Oregon story that explained the replacement loans that are starting to enter the market provided by Credit Unions. That’s just the tip of the iceberg. The free market will continue to provide solutions to the problem that are much more efficient than the ludicrous nature of payday looting.

    If you want some place to turn then turn to Consumer Credit Counseling and begin to take steps to get your debt under control. Set up a plan with them to help you begin to work your way out instead of seeking a quick fix. Most people don’t get into this type of trouble over night and they won’t get out of it overnight either. I’d rather encourage people to play the lottery than allowing them to take a chance with your beloved payday lending.

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