REGULATING PAYDAY LENDERS—Gov. Ted Kulongoski signed new payday loan consumer protections into law on April 25. OSPIRG’s Laura Etherton joined him (far right). Also pictured is State Rep. Debi Farr, House Minority Leader Rep. Jeff Merkley, State Sen. Floyd Prozanski and Ellen Lowe of the Oregon Food Bank. Photo: Patti Wentz, Our Oregon

During its record-speed April special session, the Oregon Legislature passed an OSPIRG-backed bill to give consumers new protections from payday loans’ previously unlimited interest rates and fees.

“OSPIRG applauds the Oregon State Legislature for passing new consumer protections regarding payday loans,” said Laura Etherton, consumer advocate with OSPIRG.

“This action sends a strong message to payday lenders: Gouging consumers with 500 percent interest rates and trapping borrowers in a cycle of debt are unacceptable practices in Oregon.”

Setting Limits On Loans
Payday loan outfits sell short term, high interest-rate loans to cash-strapped Oregonians.

The new bill sets limits for the first time in Oregon on payday loans interest rates and fees, setting a maximum rate of 36 percent APR, allowing a one-time 10 percent loan origination fee, and giving consumers a full 31 days to repay a loan.
Recent surveys conducted by the OSPIRG student chapters in Portland and in Lane County found that these outfits commonly charge exorbitant fees and interest—usually more than 521 percent APR, and some even topping 1,000 percent APR.

The Cycle Of Debt
In addition to high interest and fees, the studies found that the loans trap consumers into an unending cycle of debt. For example, consumers aren’t allowed to pay in installments and face a system of rollover charges that don’t pay down the loan principle.

In a typical payday loan, a consumer must write a post-dated personal check for $360 to borrow $300 for two weeks.

If the consumer is unable to repay the entire loan on the due date, he may “roll over” the loan to extend it for another two weeks, for another fee of $60.

If he rolls over the loan the three times allowed in Oregon, the borrower pays $240 in fees and owes $300 in loan principal. To keep up with the mounting fees and inescapable debt, a consumer may even take out additional payday loans to pay off the first.

Skirting The Law
Following the bill’s passage, payday loan industry representatives began advocating that the new consumer protections be repealed in the 2007 session, before the law can go into effect in July of that year.

At the same time, at least 17 payday lending companies applied for licenses to do business as “conventional short-term lenders,” which would not be subject to the new law’s cap on interest rates.

“It’s disappointing to see the payday loan industry try to skirt the new law by calling these outrageous loans by another name,” said Etherton. “OSPIRG will continue to watchdog this industry and the Legislature to make sure consumers get the protections they need.”