The Oregonian
Catherine Trevison
March 2, 2006
Gresham has at least 14 payday lenders scattered through the strip malls on most of the city’s major streets.
The lenders say they provide an essential service, a good source of cash for people who need a brief loan fast.
But opponents say the terms amount to legalized loan sharking that preys on the poor, with annual interest rates that range from 391 percent to 520 percent.
On Tuesday the Gresham City Council will decide whether to regulate payday loans by mirroring a law adopted by Portland last month. The Troutdale City Council will consider its own payday loan ordinance on March 14.The cities say they are acting because the state Legislature has failed to cap interest rates, despite several attempts in recent years.
Cities aren’t allowed to touch interest rates, said Gresham City Councilor David Widmark, who proposed joining Portland’s effort. But the city can try to keep people from digging a hole of debt that they can’t climb out of, he said.
Payday loans are accessible for employed people with bad credit or no credit history, according to the Oregon Division of Finance and Corporate Securities, which enforces existing state payday loan laws. But they "can be extremely expensive and difficult to repay if renewed," the division warns in a pamphlet for prospective borrowers.
The average loan is about $300 and lasts about two weeks. Lenders typically charge $15 to $20 for each $100 they lend over two weeks, according to the state. People who can’t pay the loan can renew it up to three times, ultimately paying $180 to borrow $300.
Gresham’s proposed payday lender law is almost identical to Portland’s. It would:
* Give potential borrowers a day to change their minds and cancel the loan. This would give them a chance to get a loan from a friend or help from a social service agency instead, proponents say.
* Prevent lenders from renewing a loan unless the borrower had already repaid a quarter of the principal. This would keep people from racking up debt on a loan they have no realistic chance of paying, proponents say;
* Require payday lenders to offer payment plans for borrowers who haven’t been able to repay the loan after renewing it several times. A plan would have to give the borrower at least two months to pay.
* Require a payday lender to spend $1,500 on a special city permit, and a pay a $1,000 fine if they break the law.
In 2004, Gresham payday lenders made 33,692 loans, for a total loan amount of about $10.9 million, according to Charles C. Donald, Supervising Examiner for the Oregon Division of Finance and Corporate Securities. The total for Multnomah County in 2004 was 221,378 loans worth almost $75 million.
Jeri Hugus manages a payday lender called Quik Cash in the heart of Rockwood, where the bright signs of several competitors beckon cars swishing by.
"You’re going to find one on every street corner," she said.
Payday lenders have been stereotyped and scapegoated, she said, by people who have only talked to the industry’s most disgruntled customers, rather than satisfied borrowers who regularly return.
"We are the poor man’s credit card, the man who doesn’t know how to balance his checkbook," she said. "There are people we’ve done good for."
Hugus calls clients "Hon." Customers like her shop because she is patient and empathetic, she said, because she’s had financial problems of her own.
She says many borrowers have thanked her for helping when they were in a tight spot, such as needing money for car repairs or a funeral. Some have even brought her flowers and Christmas presents, she said.
Her company has always let people return the next day to pay off a loan with no interest, and agrees to payment plans in some circumstances, she said. Sometimes, she said, it is customers who take advantage of payday lenders, by taking out a loan and promptly filing for bankruptcy protection.
"On average, the store makes a profit, but it’s not a huge profit," she said. "There are months where, after everything’s been paid, it’s only $500. The stores are not rolling in the money."
Unbudgeted bills
Payday borrower Judy Adams of Gresham describes the loans as a trap that she keeps falling into. She owes a total of about $1,500 on several payday loans, she said.
Adams, 65, says she has lived in east Multnomah County for 23 years. She says she gets by on Social Security and part-time work at a hotel, where she helps serve breakfast. She tries to save $10 from each paycheck, but regular expenses, such as the gasoline to get to work, often wipe out her savings, she said.
When Adams faces an unexpected bill, such as shoes to relieve back pain from standing at work, she turns to payday lenders. She doesn’t want to ask her son, who has helped her in the past, because she wants him to save for her granddaughter’s college education.
At the beginning, "It looks easy. You think, ’Oh, I’ll pay it back," she said.
After taking new loans to pay previous lenders, "you run around, and try to pay all these people off," she said. "It’s terrible, and the interest rate is just phenomenal. It’s stupid, but sometimes you do what you have to do."
Snow-CAP Community Charities, which serves east Multnomah County, was one of several area food banks that started looking into payday loans a couple of years ago.
"We’re seeing a big increase in the need for food boxes because people have gotten into this payday loan cycle, and it’s leaving them poorer than they were," said Judy Alley, Snow-CAP’s executive director. "They were saying, ’I got in hock, and it’s just a vicious circle, and I haven’t got any money, and can you help?’ When they started telling us how much money they were paying, that alerted us to the fact that it wasn’t a regular bank loan."
Snow-CAP’s board, including Gresham City Councilor Paul Warr-King, a retired banker, started researching the issue. He hopes the community can come up with alternative ways to help people who are considered "unbankable."
"You’ve got to look at both sides of coin," he said. "There is a need (for loans). How can it be better serviced? How can you help these people out?"
Whose decision is it?
Industry representatives and others say that government shouldn’t make decisions for borrowers, and that government’s good intentions might create unintended consequences.
"You’re telling them you know what’s best for them. You’re treating them more like children than competent adults," Steve Buckstein, senior policy analyst of the Cascade Policy Institute, told Portland City Commissioners during their hearing.
Other defenders said it was unfair to describe payday loans in terms of annual interest rates, because they aren’t intended to last more than 60 days. The charges should be compared to bank fees for things like using an out-of-network automatic teller machine or bouncing a check, they said.
Regulations such as Portland’s could end up severely limiting payday loan services by driving up the costs of doing business, said Thomas Shauklas, president of the Community Financial Services Association of Oregon, the trade group that represents payday lenders. The industry is considering its options to fight the law, he said.
Payday lenders could try to get a judge to block city regulations, said Gresham Assistant City Attorney Miles Ward. The lenders could argue that state laws pre-empt the field, and keep local government from taking additional action.
Widmark, of the Gresham council, said he prefers a uniform, statewide solution by the Legislature. Some legislative committees continue to look at the issue, and a citizens group is starting a ballot initiative that would limit interest rates. But Widmark says the drain on community services is so severe now that cities can’t wait.
"I figured, if the two largest entities in Multnomah County do this together, it sends a strong message to this industry that we mean business," he said.
Payday Loan Fairness: [x] Yes, [] No
©2006 Our Oregon. All rights reserved. Photos by Leah Nash.