OSPIRG Urges Legislature To Close Predatory Lending Loopholes

PREDATORY LENDING—Payday lending outfits commonly charge annual interest rates reaching 500 percent, trapping many borrowers in a cycle of debt.

The 2007 Oregon Legislature took action to close several predatory lending loopholes, and passed OSPIRG-backed legislation to cap runaway rates and fees on consumer loans to no more than 36 percent annual interest.

The legislative action followed up previous OSPIRG advocacy that reined in the payday loan industry’s annual interest rates. That bill was passed during the 2006 special session. Among its provisions, the bill gave consumers a full 31 days to repay such a loan, and limited the number of times a loan could be rolled over to two. Perhaps most importantly, the bill capped annual interest rates at 36 percent plus a one-time loan origination fee of $10 per $100 loaned—a vast improvement over rates that could exceed 500 percent annual interest.

Lenders Strike Back
Unfortunately, it didn’t take long for lenders to try to evade the interest rate caps, trying to creatively redefine themselves so they could continue making triple-digit interest rate loans under a different type of license, applying for a “conventional” consumer loan license instead of the payday loan license. And lenders on the Internet continued to take advantage of their immunity from rate caps.

“Gouging consumers with outrageous interest rates is not acceptable,” said OSPIRG Advocate Laura Etherton, “It is good news for consumers that Oregon has the very reasonable 36 percent interest rate limit and other consumer protections to title loans, Internet loans and all other types of consumer loans.”

Legislature Extends Cap
In March, the Oregon House passed House Bills 2203, 2204 and 2205 to extend the 36 percent rate caps to title loans, other payday loans such as Internet loans, and to codify predatory lending rules under the conventional consumer loan license. Such a change would help prevent future attempts by powerful interests to evade the rules.

In June, the Legislature passed House Bill 2871. The bill, representing the strongest level of consumer protection, sets a maximum annual interest rate of 36 percent on all consumer loans, and includes other strong consumer protections.

“No lender in Oregon should be charging consumers predatory interest rates, but over the last decade we have seen payday loan, title loan and other industries ripping off consumers,” said Etherton, “We applaud Speaker Merkley and all the sponsors and cosponsors of this bill for standing up and reinstating interest rate limits to protect Oregonians.”

The bill is expected to be signed into law by Governor Kulongoski on June 19, 2007