Friday, December 01, 2006
By Bill Graves
The Oregonian
Payday lenders make most of their profit by making loans over and over to the same people, according a new report by a North Carolina advocacy group.
Nationally, about 90 percent of borrowers take out five or more high-interest, short-term payday loans a year, reports the Center for Responsible Lending, a nonprofit research group based in Durham, N.C., and dedicated to eliminating what it calls abusive financial practices.
Those borrowers spent $4.2 billion nationwide and $51 million in Oregon on high interest fees, the center said.
The industry traps borrowers in a series of short-term loans that add up to long-term, high-interest debt, said Michael Calhoun, president and chief operating officer for the center. "Payday loans sink borrowers into quicksand-like debt."
Payday lenders make small loans, averaging $331 each last year in Oregon, usually for about two weeks as advances on pay. They commonly charge $20 per $100 on a two-week loan, which amounts to 521 percent annual interest. Oregon payday lenders charged an average of 528 percent interest last year, according to figures released recently by the Oregon Department of Consumer and Business Services.
In April, the Legislature passed a law, effective next July, that will restrict payday lenders to charging no more than $10 per $100 on an original loan and no more than 36 percent interest on loans that are renewed or rolled over.
Thursday’s report said "lenders compel payday borrowers to return again and again, renewing a loan for another larger fee without being able to pay down the principal. The loan flipping is the foundation of the payday lending business model."
The report said 90 percent of fees come from borrowers who have taken out five or more loans. The 90 percent figure was based on an analysis of all the loans in Washington, Florida and Oklahoma, said Leslie Parrish, an author of the report.
So in Oregon, for example, payday lenders collected $56 million in fees, an estimated $51 million of which came from borrowers with five or more loans, she said. Washington payday lenders took in a total of $172 million, $155 million from borrowers of five or more loans.
Payday lenders operate 25,000 stores in 39 states, selling $28 billion in loans in 2005, the report said. Oregon’s 366 stores made loans worth more than $278 million.
Oregon payday lenders disputed the findings of Thursday’s report, arguing that the vast majority of their borrowers do not become trapped in debt and are able to repay their loans.
"If we’re so successful, how do you suppose we got that way by lending money to people who can’t afford to pay us back." said Richard Duvall, owner of a Portland payday loan store. "Yes, we want to have repeat business. Couldn’t you say that about any business?"
Steve Hanson, president of Oak Brook Financial, one of the largest networks of payday loan stores in Oregon, noted that less than 5 percent of the state’s 840,748 payday loans last year were charged off because of borrowers failing to repay. Longer-term conventional consumer lenders, by contrast, charged off 10 percent of their loans.
"Who is doing the better job of making loans to people who can afford to repay?" Hanson asked. "We can’t seem to convince anybody that a payday loan is in most cases the low-cost alternative. It is cheaper than an NSF fee (for bounced checks)." Payday loans sometimes make sense in emergencies, he said, such as to fix cars or to see a doctor.
Hanson said payday lenders will not be able to stay in business when the law passed by the Legislature takes effect. "It reduces our revenue by 70 percent," he said.
And the Oregon Department of Consumer and Business Services may adopt new rules this month that will make it impossible for payday lenders to keep operating under conventional consumer licenses as some had hoped, Hanson said. "The war has been won against payday lenders in Oregon."
Payday Loan Fairness: [x] Yes, [] No
©2006 Our Oregon. All rights reserved. Photos by Leah Nash.