The Oregonian
May 05, 2007
The Oregon House of Representatives took the best step possible this week to further curb the predatory lending practices of payday and car-title lenders. The businesses prey on the poor and the desperate and, while the House cannot prevent that, at least it placed limits on the damage.
As The Oregonian’s Bill Graves reported in Friday editions, these businesses charged an average of 528 percent annualized interest on the 841,000 small, short-term loans they made in Oregon in 2005. Earlier action by legislators put caps of 36 percent annualized interest on such loans but, as often happens, the operators managed to find ways around the caps -- by restructuring their products or offering them over the Internet. The new legislation -- House Bill 2871 closes the loopholes.
Opponents had argued that caps like these would somehow threaten legitimate lenders in Oregon by forcing them to take unacceptable risks on borrowers. The alternative, the argument went, would be for such businesses to shut down here. We’re not sure we’d miss them if they did disappear, but we think the argument was specious to begin with. Thirty-six percent is plenty of cushion against high default rates, which admittedly are common in that particular business sector.
In Oregon, it was once considered usurious to charge more than 18 percent interest. In the double-digit inflation of the 1970s, lawmakers saw fit to raise the usury limit to 36 percent and then, in the 1980s, abandon it altogether. The interesting thing is that the inflationary expectations that engendered the lifting of the limits in the first place have disappeared. Yet, the exorbitant interest rates remain.
These days, even more conventional consumer loans and credit card debts can carry 25 percent interest rates, which once would have been scandalously high, not to mention illegal. Not to take away from the House’s efforts this week, but the entire subject could use further scrutiny by the Oregon Legislature as well as at the national level.
Around the country, 34 states have examined the seamy practice of car-title and payday lending and have adopted limits of their own. In Arkansas, for example, the state imposed a 17 percent limit on such lending. We suppose that Arkansas will pay a price for that since it falls beneath the widely imposed rates of national credit card companies, but we’d suggest that a limit at that level falls a little closer to the line between insuring against risk and price gouging than anything we’ve really considered in Oregon.
But that’s a digression, really. Members of the Oregon House did the public a favor by stepping in to block these lenders’ efforts to get around the earlier limits.
We doubt this will be the last time the topic will come up. The ingenuity of loan sharks probably exceeds legislators’ capacity to keep up with them in the long run. Predatory lending, like water and some other things, runs downhill. Preventing the damage it causes will require Oregon legislators to watch it constantly.
Payday Loan Fairness: [x] Yes, [] No
©2006 Our Oregon. All rights reserved. Photos by Leah Nash.