REGULATING PAYDAY LENDERS—OSPIRG’s Laura Etherton testifies before the Portland City Council about the dangers posed to consumers by payday lenders. Also pictured is Lisa Wenzlick of St. Luke Lutheran Church in Southwest Portland.

Consumers gained protections from the payday loan debt trap, thanks to cities passing an OSPIRG-supported ordinance regulating the industry.

The Portland City Council passed the ordinance, which was proposed by Commissioner Dan Saltzman, on Feb. 22. The Gresham City Council passed a similar ordinance on March 7, and as this newsletter went to print, Troutdale, Eugene and other cities were also considering new protections.

Preying On Consumers
Payday lenders target low-income Oregonians desperate for quick cash. With no legal limits, payday lenders commonly charge annual interest rates of 521 percent, trapping consumers in a cycle of debt.

“No matter how desperate a consumer, no lender should be able to gouge him or her with unreasonably high costs or unfair lending terms,” said OSPIRG’s Laura Etherton. “Providing Oregonians with full protections will require action at the state level. But cities have a critical role to play in the interim to enact stop-gap protections.”

The city ordinances give consumers the right to cancel the loan within 24 hours and the right to make installment payments. They also require payday lenders to design the loans so the borrower pays down the principal with each loan renewal.

Creating The Debt Cycle
Consumers who take out a payday loan borrow against their next paycheck, at a set fee. In reality, this fee amounts to annual interest rates that commonly exceed 500 percent.

When the next paycheck does arrive, many consumers are unable to repay the entire loan. Lenders then encourage these consumers to “rollover” the loan, paying more fees but not paying down the principal.

Setting very short terms on a loan— often 14 days or less—and the system of requiring a single balloon payment at the end of the short term are both examples of practices that can lead to increasing debt.

According to a study by the Oregon Department of Consumer Services, 74 percent of borrowers report being unable to repay their payday loan when due and must either default or “roll over” the loan. That means the borrower pays more interest, usually the same fee they paid to take out the loan initially, but does not pay off the principle.

Payday Lending On The Rise
Payday loan storefronts are quickly becoming big business in Oregon. In the last five years, the number of these loans increased 162 percent to 745,000, and the amount of money loaned grew 300 percent to $250 million. Roughly 60 percent of payday loan companies doing business in Oregon are based out of state.

Etherton applauded Portland and Gresham for enacting the protections, and encouraged cities across the state to consider similarly innovative measures to protect local consumers.

OSPIRG is urging Oregon to enact state-level protections that the cities are, by law, unable to put into place—such as limits on annual interest—through the Legislature or at the ballot.