Editorial
The Oregonian
February 02, 2007
P utting an end to predatory payday lending in Oregon is going to require tougher legislation than the package now heading for a vote in the House.
These bills, though welcome, won’t give Oregon what most other states have: an interest rate cap of 36 percent or less on all consumer loans. That’s the only proven way to protect vulnerable people from lenders now charging more than 500 percent interest on quickie loans secured by paychecks yet to be issued.
On Wednesday, the House Committee on Consumer Protection approved legislation that leaves a loophole for such usury. The new laws, if approved, would cap interest rates at 36 percent for short-term lenders but leave them too much room to get around that ceiling by obtaining conventional lending licenses, subject to no cap whatsoever.
This isn’t to say the four bills would fail to help low-income people keep more of their money in their pockets. They would certainly do that by restricting fees charged by check cashers, by regulating car-title lenders and Internet lenders that make loans in Oregon, and by establishing an electronic tracking system for payday loan borrowers.
Unfortunately, the legislation would not make 500 percent interest rates illegal in Oregon. The new laws would only make it more difficult for lenders to charge such outrageous rates, and you can be sure they would find ways to do so.
That’s exactly what’s happening in Illinois. In 2005, lawmakers there approved a payday loan reform bill, capping interest rates at 36 percent but only for short-term loans. Payday lenders in that state now legally evade that new law by moving to long-term loans with interest rates as high as 421 percent.
In a special session last year, Oregon legislators passed a similar reform bill. It doesn’t take effect until next July, but payday lenders are already positioning themselves to get around it. One-fourth of them have since applied for conventional loan licenses that will allow them to continue charging triple-digit interest rates.
One of the bills approved by the House committee this week must have been written by Rube Goldberg. It seeks to address the big loophole not by making usury illegal but by making it harder to pull off. It would require 90 percent of the loans made under a conventional license to exceed six months and be approved by experienced underwriters.
That may sound like a formidable barrier, but recent experience in Illinois, Virginia, Pennsylvania, Iowa and Kansas suggests that payday lenders would quickly find creative ways to circumvent it.
And why not? Payday lending in this state is enormously lucrative. Its abusive charges are going to continue to victimize economically vulnerable people as long as Oregon remains one of only 16 states with no cap on consumer loan rates.
Payday Loan Fairness: [x] Yes, [] No
©2006 Our Oregon. All rights reserved. Photos by Leah Nash.