Witnesses call for lending limits

January 12, 2006 - Salem, Oregon

Payday loans - Lawmakers hear consumer advocates and others urge a crackdown, but lenders defend their industry

Church leaders and consumer advocates urged legislators Wednesday to crack down on Oregon's booming payday lending industry, which charges soaring interests rates on short-term loans.

"Oregon's public policy lends itself to permitting predatory lending practices and to consumers being charged usurious interest rates," Robert J. Castagna, executive director for the Oregon Catholic Conference, said during a daylong hearing before an interim House subcommittee.

But payday lenders said they serve a need, charge less than banks collect for bounced checks and are sufficiently regulated by market competition.

"People use our product because it is convenient and cheaper than alternatives in the market place," said Mark Thomson, director of government relations for Moneytree Inc., a payday lender based in Seattle with stores in Oregon and five other states. "Our customers make rational choices."

Rep. Debi Farr, R-Eugene, is leading an interim legislative committee studying whether Oregon needs to increase regulation of payday lenders. Farr said she asked for the committee assignment after hearing concerns from constituents.

"Many people are taking out payday loans and don't have the ability to repay because they are living on the edge," she said. "My goal is not to put an end to the payday lending industry, but we also want to protect the customer."

Oregon is one of only a handful of states with no caps on interest rates. Short-term payday and car title lenders regularly charge 521 percent annual interest on small loans.

Borrowers rarely pay that much interest because the loans are for a short term. Payday stores typically charge $15 to $21 per $100 borrowed. Payday lenders secure the loan with a check from the borrower, which they cash on the next payday, typically in two weeks.

On a typical $300 two-week payday loan, borrowers commonly pay $60. If they cannot repay the loan after two weeks, they can pay another $60 to roll it over for two more weeks. Oregon allows lenders to roll over loans three times. Most borrowers roll over one or more of their loans, and about two-thirds of those do so three times, according to a state survey of 1,363 payday borrowers two years ago.

Payday lenders told the committee that most of their customers value the convenience of quick, small loans and pay them back without getting into financial problems. Luanne Stoltz, owner of two Portland payday loan stores and vice president of the Community Financial Service Association, which represents payday lenders, said members of her group observe fair practices. They provide full disclosure, avoid deceptive advertising, and accept early payoff of loans and payment plans for borrowers having difficulty, she said.

Suggested Limits

Church leaders, social workers and concerned citizens said payday lenders are preying on vulnerable people when they are most financially desperate. They urged the committee to require payday lenders to curb interest rates, limit rollovers, offer more payment options and extend loan periods.

"What we have here is a situation that is basically immoral," said Rex Hagans, a retired educator in Oregon City.

Payday lenders are multiplying while Oregon wages are falling, said Lisa Wenzlick, representing St. Luke Lutheran Church in Southwest Portland. "If 521 percent interest is not usury, than what is?"

The number of payday loan stores has doubled to 356 since 1999 in Oregon. Last year, state lenders made 732,000 loans worth $245 million.

Even most critics said they were opposed to banning payday lenders, which are effectively barred in 14 states by small-loan and usury laws. One exception was Isador W. Morgavi, a retired electrical engineer from Tigard.

"As Jesus threw the money lenders out of the temple, so should you throw these predators out of Oregon," he said.

Lawmakers weigh in

Rep. Derrick Kitts, R-Hillsboro, a member of Farr's committee, said, "My concern is we don't overregulate an industry that is an easy target."

Another committee member, Rep. Mike Schaufler, D-Happy Valley, said creating more family-wage jobs is the best way to tackle problems with payday lenders.

A proposed bill to regulate payday lenders died last summer in the Oregon House. While Farr's committee considers new legislation, an interim consumer committee led by Sen. Floyd Prozanski, D-Eugene, also will examine the industry. Portland may not wait for the Legislature. Commissioner Dan Saltzman will propose a law next month to regulate lenders in part by requiring that part of a loan's principal be paid before a rollover.

And Our Oregon, a progressive political nonprofit, is leaning heavily toward launching an initiative drive to cap interest rates on payday lenders.

"We know what the solutions are, but the politics keep getting in the way of what is right for Oregonians," Chris Coughlin, the group's executive director, told legislators. "The people in Oregon can't wait any longer."

Rick Bennett, representative of AARP Oregon, told a story of a woman in her late 50s who took out $700 in payday loans, in part to buy Christmas gifts for her grandchildren, and ended up paying back $1,780 before her church helped her dig out.

"Is that what we really want to see?" Bennett said. "I don't think it is. I don't think any of us want to see that."

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The Oregonian, Bill Graves, Staff Reporter

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Witnesses call for lending limits

January 12, 2006 - Salem, Oregon

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