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Payday loans under fire for high interest charges

April 12, 2006 - Eugene, Oregon

Payday loan companies in Lane County typically charge annual interest rates exceeding 500 percent, and frequently fail to conspicuously post those rates as required by state law, according to a study being released today by the Oregon Student Public Interest Research Group.

"These loans are ripping off consumers," said Laura Etherton, the nonprofit group's consumer advocate and the report's author. "The rates are all the same -- staggeringly high."

Industry spokesman Thom Shauklas, however, called the report misleading and inflammatory, and said payday loans are more properly viewed as fee-based rather than interest-accruing.

Disclosing the annual interest rate on a payday loan, while legally required, "is as silly as asking a bank to disclose the (annual rate) of a $30 overdraft charge on a $10 check," said Shauklas, president of the Community Financial Services Association of Oregon.

The OSPIRG report, "Predatory Lending in Lane County," comes at a time when payday loan reform is the subject of possible action in the Legislature's special session next week, and of a citizen initiative campaign to refer a measure to Oregon voters in November.

Meanwhile, several Oregon cities -- including Eugene -- are considering or have enacted local ordinances regulating the payday loan industry. The Eugene City Council, with support from Mayor Kitty Piercy and Councilor Andrea Ortiz, is scheduled to discuss a possible ordinance May 17.

Three cities -- Portland, Gresham and Troutdale -- already have passed such ordinances. Four payday loan companies have since filed a lawsuit against Portland's law, saying it conflicts with state law regulating short-term lenders.

The payday loan industry in Oregon has more than doubled since 2000, with 359 storefronts registered with the state at the end of 2005. All but three of the 31 storefronts in Lane County are in Eugene or Springfield.

To get a payday loan, a consumer writes a personal check in exchange for cash. The lender cashes the check on the day the loan is due -- typically after 14 days. If the consumer can't repay the loan, he can renew or "roll over" the loan up to three times -- and pay a similar fee each time.

OSPIRG decided to focus on Lane County after conducting a similar survey of payday outlets in Portland last summer, Etherton said. "We were hearing so much anecdotal evidence that consumers were getting trapped in a cycle of debt, and we wanted to get more on-the-ground data," she said.

The most common annual interest rate in Lane County was the same as in Portland -- 521 percent, the report found. Rates ranged from 365 percent on a 30-day loan to 886 percent on a 7-day loan.

About a dozen OSPIRG volunteers canvassed 26 storefronts last month to complete the survey, Etherton said. Other findings:

  • The fee for a $300 loan, among the storefronts surveyed, ranged from $45 to $94.50, with $60 most common. The rollover fee for a $300 loan ranged from $25 to $94.50, with $60 most common.
  • Among the 26 storefronts surveyed, six did not have a conspicuous, easy-to-read posting of their annual interest rate, as required by law.
  • Only three of the storefronts surveyed -- Ace Cash Express, Advance American Cash Advance and Check N Go outlets in Springfield -- run a credit check on borrowers.
  • Ten of the 14 companies with storefronts in Lane County are based out of state. Locally based storefronts include Anydays Payday Online in Springfield, Ship N Chek in Eugene, and Speedy Cash in Eugene and Springfield.
  • Increasingly, rent-to-own stores and auto title loan outfits are diversifying into payday loans. Locally, those include Rent-A-Center in Springfield and U.S. Title Loans in Eugene. The report offers several recommendations, including capping interest rates and fees, allowing installment payment plans, extending loan terms, limiting the number of rollovers and prohibiting the use of borrowers' postdated checks.

Shauklas, the industry trade group president, said payday stores already are regulated and audited, and have requirements of borrowers -- such as holding a job and having a checking account. Many stores don't make credit checks, he said, because that runs counter to the industry's goal of providing quick, easy loans.

Auditors are charged with making sure that stores post interest rates as required, Shauklas said. The failure of a handful of stores to post the rates is akin to isolated scofflaws found in any industry, he said.

"We have a product with wide acceptance, limited complaints and educated consumers," he said. "I recognize our product is not for everybody, but I feel strongly that people need to have choices. It's important that they not be shackled by others saying, 'I know what's best for you.' "

Critics, however, are unswayed by such comments, moving forward on local city ordinances as well as on the statewide ballot measure.

Patty Wentz, communications director for Our Oregon, the group pushing the statewide measure, said she views the city measures as complementary to the initiative campaign. The issues are different because cities, by law, cannot cap interest rates. But they can require such things as installment payment plans, or partial loan repayments prior to a rollover.

Eugene city lobbyist Jason Heuser said Eugene is looking at an ordinance similar to Portland's. Cities across the state are trying to use similar language, he said, to answer industry advocates' argument that a multitude of municipal laws would create a confusing patchwork of requirements.

Portland's law allows rollovers only if the borrower has paid 25 percent of the original loan's principal and interest; a one-day window to cancel a loan; and installment payment plans.

The state initiative, meanwhile, would cap annual interest rates at 36 percent; extend the minimum loan length to 31 days; and limit rollovers to two.

In Salem, two Lane County legislators -- Democratic Sen. Floyd Prozanski and Republican Rep. Debi Farr -- have taken the lead on payday reform legislation.

Gov. Ted Kulongoski on Tuesday reiterated that he would only support a payday reform law that is at least as stringent as the proposed ballot measure.

He also said he wants to pursue legislation next year that would cap the fees that check-cashing stores charge for cashing paychecks and government checks.

The actions are needed, he said, to help stem hunger among low-income Oregonians.

News Source

The Register-Guard, Jeff Wright, Staff Writer

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