Last year we took an important step toward ending predatory 500% loans. In an effort to curb the abuses of predatory payday loans, advocates drafted and lawmakers passed SB 1105 the Payday Loan Reform Act. The law caps interest on payday loans at 36 percent, limits fees to 10 percent of the loan, reduces the number of loan renewals to two, and increases the minimum loan term to 31-days.
Lenders are evading the law before it even goes into effect. The law goes into effect July 2007, but lenders have already started operating outside of the reach of SB 1105. Since last April, 25 percent of Oregon’s payday lenders have applied for loan licenses that allow them to continue to charge triple-digit interest. Currently, 69 stores hold both a short-term and conventional lending license.
Closing the loophole means bringing an end to the 500 percent interest rates that define the payday and car title lending industry. Lenders who have switched to the conventional lending license are now operating outside of SB 1105 and will not be subject to the 36 percent interest cap.
We can help win economic fairness by asking lawmakers to support the following consumer protection bills. Together, these bills that will help Oregon families keep more of their hard earned money by making basic financial services, like check cashing and short-term loans, more affordable. Together, those proposals will make the following important changes:
- Protect all consumers from high-interest loans. Cap all consumer loans at 36 percent. Bill number to come soon. This proposal will apply to all consumer loans, thus closing the loophole that has allowed payday lenders to evade the rate cap. Provisions include: limit interest to 36 percent and cap fees at 5% or $30.
- Tighten regulations on short-term payday loans. HB 2203 would establish a database to track loans; apply state consumer protections, including the cap on fees and interest, to Internet payday lenders; and, allow lenders to recoup actual collection costs on bad debt without allowing excessive penalty fees.
- Limit fees and interest on short-term car title loans. HB 2204 would extend payday loan reform to short term car title loans. Provisions include: limit interest to 36 percent, limit fees to $10 per $100 for new loans, and establish 31-day loan term.
- Strengthen loan-writing rules for conventional loans. HB 2205 would require lenders licensed under conventional lending license to make loans that are fully amortized, adhere to underwriting guidelines, and carry a term of 6 months or longer.
Closing the payday loan loophole means making it illegal to charge 500 percent interest. The national experiment with credit deregulation has proven to be a disaster for financially vulnerable families. Rather than help borrowers meet their financial challenges, triple-digit loans trap borrowers in a cycle that puts them in a worse financial situation.
Payday Loan Fairness: [x] Yes, [] No
©2006 Our Oregon. All rights reserved. Photos by Leah Nash.